Indicate whether the statement is true or false, and justify your answer.The internal rate of return is defined as the interest rate that makes the net present value of an investment stream exactly equal to zero.
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Indicate whether the statement is true or false, and justify your answer.
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- Indicate whether the statement is true or false, and justify your answer.Consider two investment streams w and z which pay out some amount, w(t) and z(t), in each period t. (The amount may be negative in some periods.) If the interest rate is exactly equal to the internal rate of return of w(t), the net present value of choosing w over z is zero.Consider a worker who is offered a salary bonus of $2,000 for each of the next two years if he or she enrolls in a job training program this year. The total cost to the worker, including any forgone earnings, is $3,000. (1). What is the internal rate of return on this investment? (2). Would this be a good investment for someone with a discount rate of 9%? Why? Please show your solution process and explain.John and Peter are two representative consumers/investors who maximize the utility of consumption. John's utility of consumption is characterized as ln(x) + 2ln(y) while Peter puts more weight on the current consumption level and has a utility function of 2ln(x) + ln(y). John has a wealth of ($10, $20) thousand, while Peter has a wealth of ($20, $15) thousand now and next year, respectively. (a) What are the optimal consumption plans forJohn and Peter,respectively,if the interest rate is 5% per annum? (b) If John and Peter are the only investors/consumers, what is the equilibrium interest rate? (c) Further to part (b), how much do they borrow or lend to each other?
- Imagine that at age 25 you have the choice to begin to deposit $8000 per year into your 401k. You will retire at 65. The 401k grows at (an average of) 6% per year (it compounds yearly). Say that your utility for money is just the value of money: u(x) = x. Say that you have a “standard” discount rate of 0.95, which choice would an individual make? What is the implied break-even \beta if you have quasi-hyperbolic preferences?Determine which of the two investment projects of Problem 5 the manager should choose if the discount rate of the firm is 30 percent. Additional information. Problem 5 states determine which of two investment projects a manager should choose if the discount rate of the firm is 10 percent. The first project promises a profit of $100,000 in each of the next four years, while the second project promises a profit of $75,000 in each of the next six years.An individual’s utility function is given as U (X) = X 0.5 where X represents the money, he has available for spending in a given time period. This individual has income of $225 in each time period and he discounts the future at the rate of 0.7. If he invests his up-front cost is 25 and his return in in the next time period is 35. a. Would this individual consider investing if his investment is financed by borrowing and cost of borrowing is 30%? (Consider two period model to justify your answer) b. Would this individual consider investing if his investment is financed by current savings? (Use two period model to justify your answer). c. Would this individual consider investing if his investment is financed by: $10 from current savings and rest of it from borrowing and the cost of borrowing is 30%? (Use two period model to justify your answer).
- Consumer has utility function ln(c1)+beta*ln(c2), where beta=1. Interest rate i=50%. Income y1=10 and y2=50. There is no government. Optimal saving for the consumer is s=______. (Hint: s can be positive or negative)An investor with an initial endowment of $ 16,000 is confronted with the following productivity curve: C₁= 240 (16,000 - Co)0.5 where Co denotes consumption at present, and C₁ consumption in the future. Assume the interest rate (for borrowing and lending) is 20%. The investor's utility function, from which it is possible to derive his indifference curves, is defined as: U(CO, C1)=C0C1 How much does the investor borrow or lend in the capital market? O The investor borrowed $13,000 O The investor lent $13,000 O The investor borrowed $7,000 O The investor lent $7,000H3. An investor with an initial endowment of $ 16,000 is confronted with the following productivity curve: C1= 240 (16,000 − C0)0.5 where C0 denotes consumption at present, and C1 consumption in the future. Assume the interest rate (for borrowing and lending) is 20%. The investor's utility function, from which it is possible to derive his indifference curves, is defined as: U(C0, C1) =C0C1 . What is the NPV of the investment chosen by the investor? Show proper step by step calculation
- A college professor is planning for his retirement years. His utility function is u(c¿, C7) = 3cº5 + 2c5, where c; represents his consumption today (period 1), his active years of teaching, and c, represents his consumption in his retirement years (period 2). During his active years of teaching, he makes a total of Ł3 million, while in his retirement years his total income is Ł1 million. He can borrow or lend at an interest rate of 25% between the two periods. .0.5 a. Write an equation that describes the professor's budget assuming he will spend all his income during his lifetime. b. If the professor chooses neither to borrow nor to lend during his active years, what will be his marginal rate of substitution between his consumption today and his retirement years? c. If the professor aims at maximizing his utility, how much does he consume in each period (use the Lagrangian method)? Does he save for his retirement years? If so, how much? d. At what interest rate would the professor…You are a financial planner. One of your clients is 40 years old and wants to begin saving for retirement. You advise her to put $5,000 a year into the stock market. You estimate that the market's effective return will be, on average, 12 percent a year. Assume the investment will be made at the end of the year. What is the value of her savings after 20 years.You are a financial planner. One of your clients is 40 years old and wants to begin saving for retirement. You advise her to put $5,000 a year into the stock market. You estimate that the market's effective return will be, on average, 12 percent a year. Assume the investment will be made at the end of the year. What is the value of her savings after 20 years. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.An investor with an initial endowment of $ 16,000 is confronted with the following productivity curve: C1= 240 (16,000 - C0)^0.5 where C0 denotes consumption at present, and C1 consumption in the future. Assume the interest rate (for borrowing and lending) is 20%. The investor's utility function, from which it is possible to derive his indifference curves, is defined as: U(C0,C1) =C0C1 How much will the investor invest in production? A)$16,000 B)$0 C)$10,000 D)$12,000