1. Inflation is a measure of A) The money supply B) The decrease in the purchasi
ID: 1164523 • Letter: 1
Question
1. Inflation is a measure of A) The money supply B) The decrease in the purchasing power of currency C) Interest rates D) Demand for products 2. With a loan of $5000.00 at a compounded interest rate of 8% per year, what is the payment at the end-of-year 3 if at the end of each year you pay $1000.00 plus the interest accumulated in that year? A) S1400.00 B) S1240.00 C) $1320.00 D) S3240.00 3. The effective interest rate every three months of a nominal interest rate of 12% per year compounded quarterly is: A) 3% per quarter C)496 per quarter B) 6% per semi-annual period D) 12.55% per year Ifthe MARR is 35% per year and the IRR ofcost alternative A is 40%, the IRR ofcost alternative B is 50% and 4. IRR (B-A) is 30%, what alternative should be chosen? A) Alternative B B) Alternative A C) There is not enough information to make a selection. D) The do-nothing alternative 5. Which equation can be used to determine the internal rate of return? A) PW of benefits- PW of costs0 C) EUAB-EUAC-, 1 B) NPW 1 D) All of the above If a present worth cost of $400.00 has an equivalent annual worth cost of S48.00 at an interest rate of 12% per year, what is the service lifetime? 6. A) 8.3 years C) 10 years or greater B) Infinity D) Both A and CExplanation / Answer
Answer 1: Inflation is a measure of decrease in the purchasing power of money .As purchasing power is a value of currency expressed in the terms of amount of good and services . Inflation tell us about the how has been our purchasing decrease with increase in the price level.
Answer 2 : Amount of payment due at the end of 3rd year
= $1000+$(3000)*0.08
= $1000+$240= $1240
Answer 3 : r= (1+I/n)n -1
r= (1+0.12/4)4 -1
r= (1.03)4 -1 = 0.1225
Therefore effective rate of return = 12.25%
Answer 4 : Alternative B has been chosen because alternative B has highest i r r . It is the discount rate at which and NPV of an investment become zero.
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