1) I give you $1,000. You put it in a bank collection 5% interest. How much money will you have after 5 years?
2) Now, instead, I'm going to give you $1000 in 5 years. Wanting money now, you go to a bank to borrow money. You promise you'll pay them $1000 in 5 years. At 5% interest, how much money will they loan you?3) In exchange for a good grade in this class, you offer me a series of bribes.
Option 1 is $100/year for 5 years (first payment is today, final payment is 4 years from now).
Option 2 is $100/year for 6 years, starting one year from today (first payment is 1 year from now, final payment is 6 years from now).
Which option(s) do I prefer.a) Option 1 if r is 10%, option 1 if r is 15%b) Option 1 if r is 10%, option 2 if r is 15%c) Option 2 if r is 10%, option 1 if r is 15%d) Option 2 if r is 10%, option 2 if r is 15% 4)
Let P represent present consumption and F represent future consumption. Your utility function for present and future consumption is given by U(P,F)=P*F. You earn an income of $50,000 in the present, and will subsequently earn an income of $50,000 in the future.
Will you be a net borrower or net saver?a) Net borrowerb) Net Saverc) Neither borrower nor saver.