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All individuals just consume the sum earned in periods 1 and 2. Show that the two types will invest in one project, in period 2 only.
The discount factor for type 1 is now ß1 = 0.65 and the discount factor for type 2 is ß2 = 0.65. Show that in this case neither type will invest at all.
Compute the premium fee set by the insurer. With this level of risk premium, which of the two types will purchase insurance? Explain your answer.
Discuss aspects of the tax laws that make the form of organization less important.
What are the advantages and disadvantages of the use of a sole proprietorship versus a partnership for conducting the operations of a small business firm?
How much income tax must the corporation pay? What is the marginal tax rate? What is the average tax rate? How much tax must the corporation pay?
The bond currently sells for $1153. What are the historical after-tax cost of debt and the current after-tax cost of debt? Assume a 40 percent tax rate.
Its pretax cost of equity is 14 percent, and its pretax cost of debt is 8 percent. The tax rate is 40 percent. What is the NPV of this project?
What kinds of additional information would you need to have in order to draw sharper comparisons?
Explain three differences between contracts offered by microfinance institutions and standard contracts offered by commercial banks.
If the bank only aims to break even, calculate the interest rates charged to high types and to low types. Compare the two rates.
What is the maximum gross interest repayment R** for each I loan at which the borrowers would be willing to repay at date 1 and 2?
Consider the same economy as in exercise 7, but suppose that we now have y = $380, d = 0.75 and K = $150. Will the bank be willing to extend loans in this case?
Compute the maximum gross loan repayment R* that the bank can set without undermining the borrower's incentives to repay at date 1.
Define the gross repayment R* that would enable the bank to elicit effort and debt repayments from the borrower at date 1.
Explain why the coffee shop manager should measure elasticity using the mid-point method in his calculations.
Explain why the price elasticity of demand for math tutoring might be elastic. Then explain why price elasticity of demand for math tutoring might be inelastic.
Which will have a more price-elastic supply over six months: real estate in downtown Manhattan or real estate in rural Oklahoma? Explain your reasoning.
plain what would happen to the price elasticity of supply for haircuts if this licensing requirement were removed.
What happens to your consumption of the second good if the price of the first good increases?
In France, where cheese is an important and traditional part of people's meal. In which country do you think demand for cheese will be more income-elastic? Why?
Name a good you consume for which your income elasticity of demand is negative. What happens when your income increases?
What will be the percent change in quantity demanded when the price of a used car falls from $5,000 to $3,000?
How can one reconcile the idea of loans with zero percent interest with the existence of moneylenders charging rates above 100 percent per year?
Briefly assess the efficiency and equity of informal credit markets in light of your explanations.