Use economic equivalence to determine the amount of money or value of i that mak
ID: 2819722 • Letter: U
Question
Use economic equivalence to determine the amount of money or value of i that makes the following statements correct. (a) $6000 today is equivalent to $5275 exactly 1 year ago at i = __% per year. (b) A car that costs $18,000 today will cost $__ a year from now at i = 4% per year. (c) At i = 4% per year, a car that costs $18,000 now, would have cost $__ one year ago. (d) Last year, Jackson borrowed $30,000 to buy a preowned boat. He repaid the principal of the loan plus $4500 interest after only 1 year. This year, his brother Henri borrowed $20,000 to buy a car and expects to pay it off in only 1 year plus interest of $3000. The rate that each brother paid for his loan is __ % for Jackson and __ % per year for Henri. (e) Last year, Sheila turned down a job that paid $65,000 per year. This year, she accepted one that pays $69,000 per year. The salaries are equivalent at i = __% per year.
Explanation / Answer
(a) $6000 today is equivalent to $5275 exactly 1 year ago at i = 13.75% per year. (6000/5275-1)
(b) A car that costs $18,000 today will cost $ 18720 a year from now at i = 4% per year. (18000*1.04)
(c) At i = 4% per year, a car that costs $18,000 now, would have cost $ 17308 one year ago. (18000/1.04)
(d) Last year, Jackson borrowed $30,000 to buy a pre-owned boat. He repaid the principal of the loan plus $4500 interest after only 1 year. This year, his brother Henri borrowed $20,000 to buy a car and expects to pay it off in only 1 year plus interest of $3000. The rate that each brother paid for his loan is 15% for Jackson and 15 % per year for Henri. (4500/30000,3000/20000)
(e) Last year, Sheila turned down a job that paid $65,000 per year. This year, she accepted one that pays $69,000 per year. The salaries are equivalent at i = 6.15% per year (69000/65000-1)
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