Suppose you have an offer of $200,000 to sell your house this year. The market r

Question

Suppose you have an offer of $200,000 to sell your house this year. The market rate of interest is 10%. You expect to be able to sell your house next year for $230,000.
1. Should you sell your house this year or should you wait and sell next year? a. Sell now
b. Never sell
c. Sell Later
d. Wait for the interest rate to change

2. If you only expected to get $215,000 next year what would you do? a. Sell now
b. Never sell
c. Sell later
d. Wait for the interest rate to change

3. How does this relate to the theory of nonrenewable resource allocation over time as discussed in class? a. It does not relate because the housing market is not natural b. To make a selling decision we take into account the discounted present value and the expected selling price
c. Because houses are set in land it is expected that they behave like a natural resource
d. Houses can be renewed so this example does not relate

4. In particular, what does it tell you about how prices must behave in a market for nonrenewable resources? a. Prices in the market for nonrenewable resources follow hotelling's rule, meaning prices should rise at the rate of interest
b. As stated in the previous question, these examples are not related
c. We should preserve natural resources at all cost
d. We should use the nonrenewable resources since we will leave more capital goods for future generations

Suppose you have an offer of $200,000 to sell your house this year. The market rate of interest is 10%. You expect to be able to sell your house next year for $230,000.
1. Should you sell your house this year or should you wait and sell next year? a. Sell now
b. Never sell
c. Sell Later
d. Wait for the interest rate to change

2. If you only expected to get $215,000 next year what would you do? a. Sell now
b. Never sell
c. Sell later
d. Wait for the interest rate to change

3. How does this relate to the theory of nonrenewable resource allocation over time as discussed in class? a. It does not relate because the housing market is not natural b. To make a selling decision we take into account the discounted present value and the expected selling price
c. Because houses are set in land it is expected that they behave like a natural resource
d. Houses can be renewed so this example does not relate

4. In particular, what does it tell you about how prices must behave in a market for nonrenewable resources? a. Prices in the market for nonrenewable resources follow hotelling's rule, meaning prices should rise at the rate of interest
b. As stated in the previous question, these examples are not related
c. We should preserve natural resources at all cost
d. We should use the nonrenewable resources since we will leave more capital goods for future generations

Suppose you have an offer of $200,000 to sell your house this year. The market rate of interest is 10%. You expect to be able to sell your house next year for $230,000.
1. Should you sell your house this year or should you wait and sell next year? a. Sell now
b. Never sell
c. Sell Later
d. Wait for the interest rate to change

2. If you only expected to get $215,000 next year what would you do? a. Sell now
b. Never sell
c. Sell later
d. Wait for the interest rate to change

3. How does this relate to the theory of nonrenewable resource allocation over time as discussed in class? a. It does not relate because the housing market is not natural b. To make a selling decision we take into account the discounted present value and the expected selling price
c. Because houses are set in land it is expected that they behave like a natural resource
d. Houses can be renewed so this example does not relate

4. In particular, what does it tell you about how prices must behave in a market for nonrenewable resources? a. Prices in the market for nonrenewable resources follow hotelling's rule, meaning prices should rise at the rate of interest
b. As stated in the previous question, these examples are not related
c. We should preserve natural resources at all cost
d. We should use the nonrenewable resources since we will leave more capital goods for future generations

a. Sell now
b. Never sell
c. Sell Later
d. Wait for the interest rate to change

2. If you only expected to get $215,000 next year what would you do? a. Sell now
b. Never sell
c. Sell later
d. Wait for the interest rate to change

3. How does this relate to the theory of nonrenewable resource allocation over time as discussed in class? a. It does not relate because the housing market is not natural b. To make a selling decision we take into account the discounted present value and the expected selling price
c. Because houses are set in land it is expected that they behave like a natural resource
d. Houses can be renewed so this example does not relate

4. In particular, what does it tell you about how prices must behave in a market for nonrenewable resources? a. Prices in the market for nonrenewable resources follow hotelling's rule, meaning prices should rise at the rate of interest
b. As stated in the previous question, these examples are not related
c. We should preserve natural resources at all cost
d. We should use the nonrenewable resources since we will leave more capital goods for future generations

Explanation / Answer

1.

C. Sell Later

Working note:

Present value of price = 230000/(1+10%) = $209090.9

Since the present value of the payment after 1 year is higher than the offer value being made today, so it should be sold after 1 year.

2.

A. Sell now

Working note:

Present value of price = 215000/(1+10%) = $195454.5

Since the present value of the payment after 1 year is lower than the offer value being made today, so it should be sold today.

3.

B

The time value of money is related in the given scenario.

4.

A

Net Prices change per unit of time should be in accordance with the interest rate change. It is as per the Hotelling's rule.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.