1. If mortgage rates rise from 5% to 10% but the expected rate of increase in housing prices rises from 2% to 9% , are people more or less to buy houses.
2. IRs was lower in the mid-1980s than in the late 1970s, yet many economists have commented that real IRs was actually much higher in the mid-1980s than in the late 1970s. Does this make sense? Do you think those economists are right?
3. A lottery claims its grand prize is $10 million, payable over 5 years at $2 million per year. If the first payment is made immediately, what is the grand prize really worth? Use an IR of 6%.