Time Value Of Money

Economics Risk 1. a. Assuming the opportunity interest rate is 8%, what is the present value of the second alternative mentioned above? The present value of second alternative is as follows, The formula to calculate the present value of future amount is given by PV of Future Amount = A / (1+r) ^ n. Amount Yr end received Rate Present Value $7,000,000 1st year 8% $7,000,000/(1-0.08)^1 $6,481,481.48 $7,000,000 2nd year 8% $7,000,000/(1-0.08)^2 $6.001.371.74 Present value Second alternative $12,482,853.22 Which of the two alternatives should be chosen and why? The second alternative s higher in value for the students. This offers them more scholarship to work with.

Current ratio = Current assets/current liabilities = $1,085 million / $450 million = 2.41 2. Total Debt to equity = Total liabilities / Stockholder’s equity Total liabilities for 2009 = $1003 million Stockholder’s equity for 2009 = $1,845 million Ratio of total debt to stockholders’ equity for 2009 = $1,003/$1,845 = 54.36% 3. Gross profit rate = Gross profit / Sales Gross profit for 2009 = $2,362 million Gross margin percentage for 2009 = $2,362 / $3,540 = 66.72% 4. Return on sales = Net income / Sales Net income for 2009 = $272 million Sales for 2009 = $3,540 million Return on sales for 2009 = $272 / $3540 = 7.68% 5. Return on stockholders’ equity = Net income / Average stockholders’ equity Net income for 2009 = $272 million Average stockholders’ equity for 2009 = $1,732 million Return on stockholders’ equity for 2009 = $272 / $1,732 = 15.70% 6.

If the rate of interest for bank loans is high, the potential borrower would prefer not to take a loan because they would not want to pay a high interest. However, if the rate of interest was low, the potential borrower would take a loan from the bank because they would not have to pay that much interest. Another factor that could influence the demand for bank loans is the condition of the economy. When the economy is doing well, people would be likely to take a loan and spend more when their prospects for employment are

ROLE OF MONEY IN MACROECONOMICS 1. Introduction Money can be seen as the medium of exchange which is acceptable while transaction is being undertaken between two parties. Some of the common forms of money are: - Commodity money: This is when the value of the good represents its value in terms of money like gold or silver. - Fiat money: This is when the value of the good is less than the value it represents - Bank money: It is the accounting credits that can be used by the depositor Money serves a variety of crucial functions in the economy and this is why it has gained an unparalleled influence in the matters of economy at micro as well as macro levels. Some of the features of money that make it so important for any economy are as follows:

This is not fair, especially when you have those individuals in society who have more wealth than they know what to do with. Another assumption that Locke seems to imply about trading is that is mutually beneficial when it concerns trading money for other goods. He says that by “mutual consent men would take [money] in exchange for the truly useful, but perishable supports of life” (Locke 28). However, in this passage, Locke does not take into account that one of the parties of the exchange may have an advantage over the other, such as the seller overcharging or undercharging the buyer. The former of these seems to happen quite frequently in today’s world, especially when consumers are purchasing things such as electronics.

Q3. How much value, if any, does Buffett derive from the credit agreement? There are two parts of the credit agreement, the 8-year term loan and the penny warrants. The $400 million term loan accompanying with a $45 million revolving credit facility will give Buffett a chance to earn at an interest rate of 10.5%. Based on the result of calculation, the NPV that Berkshire can gain is $51.2 million.

This means as employees’ nominal wages increase with inflation their real wage (purchasing power of nominal wages) may remain constant. Since inflation reduces the incentive for households to save, it causes a shortage of savings for firms to borrow. Firms finance investment (the purchase of new capital goods) by borrowing money. Therefore, if there is not saving funds for investment will

So this facility depends on the relationship of the business with the banker. Reasonable amount of interest is been charged on the over drawn amount and is on daily basis. But in this overdraft business the banker has the right of claiming the overdraft amount from the business whenever required. This arrangement is economical for the business as the interest is charged on a daily basis unlike other options such as term loans as the interest is fixed over a period. Once cash and cheques are deposited n the account, automatically the overdraft amount would decease and interest would be charged on the lesser

It is just an instrument of commerce that enables people to exchange one good for another and produce more wealth. This means that money, paper or specie, just facilitates transactions because humans have formed a consensus over its ability to be used to buy or sell commodities. Hume follows this claim by introducing a theory which today is one of the foundations for macroeconomics: the quantity theory of money. He writes that “the prices of commodities are always proportioned to the plenty of money…” (Hume, II.III.1). This is very similar to the neo-classical quantity theory of money which also equates the price level being directly proportional to the money supply of a country.

Along these lines, unemployment may decrease, as this has different favorable circumstances, for example, lower government using on profits and less social issues. However, this phenomenon includes a number of different expenses. Firstly, if economic growth is unsustainable and is higher than the long run pattern rate, inflations are liable to be seen. An increase in economic growth could prompt an equalization of issued installments. In case the expanded customer expenditure causes further development, there will be an increase in the import sector.