A market research firm conducted a study and compiled the following table with r

Question

A market research firm conducted a study and compiled the following table with respect to the
total number of happiness derived by the students from tea and tacos. For example, one glass of tea
creates 10 utils of happiness, while 2 glasses of tea provides a total of 14 utils of happiness.  
Assume that tea cost $1.00 per glass and tacos cost $2.00 each and that Denise has exactly
$4.00 to spend. According to economic principles, how should she spend her money?

0 tea and 2 tacos

4 teas and 0 tacos

1 tea and 1 taco

2 teas and 2 tacos

2 teas and 1 taco

Jack and Diane are lottery winners. They hold the ticket to the Grand Prize in the “Set for Life” Prize that makes 20 consecutive annual payments of $50,000 starting immediately. There is one hitch: the eleventh payment (to be received at the end of year 10) is not $50,000 but only $20,000 (that is, this payment is $30,000 LESS than the other 20). Which of the following comes closest to the present value of the prize if interest rates are 5%?

$ 686,430

$ 551,529

$ 591,154

$ 743,867

$ 635,849

Jensen Corporations’ bonds were issued two years ago and have 8 more years till maturity. The bonds were issued at $1,000 par, but the latest market price has fallen to $975 and the bonds have a yield to maturity of 11.5%. Based on this information, what coupon rate is attached to the bond?

13%

11%

14%

15%

12%

Jose is 25 years old today and has a retirement plan that permits him to place monthly amounts of $150 into a retirement vehicle, beginning one month from now, for 30 consecutive years. When Jose reaches retirement at age 55, he expects to live for 40 more years. What is the most he can spend, per month, throughout all of his retirement years? Assume that his retirement benefits begin one month after his 55th birthday and an interest rate of 5%?

$ 602

$ 435

$ 313

$ 1,137

$ 829

When would the calculation of the effective annual interest rate be most useful?

When comparing two investments that compound differently within a year

When comparing two investments with different annuity amounts

When comparing two investments that have different inherent risk

When comparing two investments with different par values

When comparing two investments that end at different points in time

Which comes closest to the present value of a 25 year annuity of $100 that begins immediately if the interest rate is 5%?

$ 1,794

$ 1,247

$ 1,480

$ 1,355

$ 1,625

Which of the following comes closest to the value of investing $5,000 today for 5 years at the rate of 5% compounded monthly?

$ 5,808

$ 6,105

$ 7,088

$ 6,744

$ 6,417

The parents of a newborn baby would like to put money away today to cover all of the child’s expected total 4-years of college tuition. The first tuition payment is due exactly 18 years from today, and the next three payments are due at the end of years 19, 20 and 21. Suppose that the parents estimate that the cost of tuition will be $86,000 per year for the first three years, but that the fourth year’s tuition will be $96,000. Which comes closest to the amount of money that needs to be set aside today if the interest rate is 5%?

$ 198,781

$ 154,633

$ 164,649

$ 136,639

$ 113,608

What amount comes closest to the value in 20 years of investing $100 today if the interest rate is 5%?

$ 265

$ 181

$ 219

$ 321

$ 387

unit Total utils from Tea unit Total utils from tacos 1 10 1 18 2 14 2 34 3 15 3 48 4 15.5 4 50

Explanation / Answer

Answer.

1. She should spend theire money on

a.0 tea and 2 tacos

tacos cost $2.00 each

Cost = $2.00 x 2 = $4

Total utils from tacos = 34 x 2 = 68

2. Calculation of present value .

e.$ 635,849

3. Calculation of interest rate atteched.

($1,000 - $975) / $1,000

= 2.5%

So, 11.5% + 2.5% = 14%

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