Question 1

If the interest rate is r and will remain r forever,then a bond that will pay 75 dollars a year forever,starting one year from now,is worth how much today?

Accepted Answer

A)  75/(1 + r)dollars. 
B)  75(1 + r)dollars. 
C)  75/(1 + r +r2 +..............+......... r n +.....)dollars. 
D)  75/r dollars. 
E)  None of the above. 
A)  75/(1 + r)dollars. 
B)  75(1 + r)dollars. 
C)  75/(1 + r +r2 +..............+......... r n +.....)dollars. 
D)  75/r dollars. 
E)  None of the above.

Question 2

In a perfect asset market,it is known with certainty that an asset will sell for $24 in one year.If the annual interest rate is 10%,then the asset will sell for $26.40 right now.

Accepted Answer

A) True 
 B)False

Question 3

A consumer who can borrow and lend at the same interest rate should prefer an endowment with a higher present value to an endowment with a lower present value,no matter how he plans to allocate consumption over the course of his life.

Accepted Answer

A) True 
 B)False

Question 4

If the interest rate is 17%,and will remain 17% forever,how much would a rational investor be willing to pay for an asset that will pay him 7,020 dollars 1 year from now,1,368 dollars 2 years from now,and nothing at any other time?

Accepted Answer

A)  7,000 dollars 
B)  6,000 dollars 
C)  41,176.47 dollars 
D)  126,000 dollars 
E)  8,000 dollars 
A)  7,000 dollars 
B)  6,000 dollars 
C)  41,176.47 dollars 
D)  126,000 dollars 
E)  8,000 dollars

Question 5

The interest rate is 10% and there is no inflation.A bond is available that can be redeemed either after one year or after two years.If it is redeemed after one year,the investor gets $110.If it is redeemed after two years,the investor gets $117.70.The investor gets no other payments than what she receives when she redeems the bond.In equilibrium,investors will be willing to pay more than $100 for this bond.

Accepted Answer

A) True 
 B)False

Question 6

Shivers's annual fuel bill for home heating is 800 dollars per year.He considers three alternative plans for insulating his house.Plan A would reduce his annual fuel bill by 15%,plan B would reduce it by 20%,and plan C would eliminate his need for heating fuel altogether.The plan A insulation job would cost Shivers 800 dollars,plan B would cost him 1,100,dollars,and plan C would cost him 8,800 dollars.If the interest rate is 10% and his house and the insulation job last forever,which plan is the best for Shivers?

Accepted Answer

A)  Plan A. 
B)  Plan B. 
C)  Plan C. 
D)  Plans A and B are equally good. 
E)  He is best off using none of the plans. 
A)  Plan A. 
B)  Plan B. 
C)  Plan C. 
D)  Plans A and B are equally good. 
E)  He is best off using none of the plans.

Exam 11:Asset Markets-Part A

If the interest rate is r and will remain r forever,then a bond that will pay 75 dollars a year forever,starting one year from now,is worth how much today?

In a perfect asset market,it is known with certainty that an asset will sell for $24 in one year.If the annual interest rate is 10%,then the asset will sell for $26.40 right now.

A consumer who can borrow and lend at the same interest rate should prefer an endowment with a higher present value to an endowment with a lower present value,no matter how he plans to allocate consumption over the course of his life.

If the interest rate is 17%,and will remain 17% forever,how much would a rational investor be willing to pay for an asset that will pay him 7,020 dollars 1 year from now,1,368 dollars 2 years from now,and nothing at any other time?

Demand-Part A

Revealed Preference-Part A

Revealed Preference-Part B

Slutsky Equation-Part A

Slutsky Equation-Part B

Buying and Selling-Part A

Buying and Selling-Part B

Intertemporal Choice-Part A

Intertemporal Choice-Part B

Asset Markets-Part B

Uncertainty-Part A

Uncertainty-Part B

Risky Assets-Part A

Risky Assets-Part B

Consumers Surplus-Part A

Consumers Surplus-Part B

Market Demand-Part A

Market Demand-Part B

Equilibrium-Part A

Equilibrium-Part B

Auctions-Part A

Auctions-Part B

Technology-Part A

Technology-Part B

Profit Maximization-Part A

Profit Maximization-Part B

Cost Minimization-Part A

Cost Minimization-Part B

Cost Curves-Part A

Cost Curves-Part B

Firm Supply-Part A

Firm Supply-Part B

Industry Supply-Part A

Industry Supply-Part B

Monopoly-Part A

Monopoly-Part B

Monopoly Behavior-Part A

Monopoly Behavior-Part B

Factor Markets-Part A

Factor Markets-Part B

Oligopoly-Part A

Oligopoly-Part B

Game Theory-Part A

Game Theory-Part B

Game Applications-Part A

Game Applications-Part B

Behavioral Economics-Part A

Exchange-Part A

Exchange-Part B

Production-Part A

Production-Part B

Welfare-Part A

Welfare-Part B

Externalities-Part A

Externalities-Part B

Information Technology-Part A

Information Technology-Part B

Public Goods-Part A

Public Goods-Part B

Asymmetric Information-Part A

Asymmetric Information-Part B

Filters