Irving Fisher’s The Theory of Interest‚ 1930 Preface -- It was the misunderstanding of my theory of interest put forward in my 1907 book the Rate of Interest that led me to adopt the catchword “investment opportunity” as a substitute for the inadequate term “productivity” which had come into general use. This combined with my early “impatience theory” led to the impatience and opportunity theory which can be said to be distinct from all other theories of interest because it explicitly analyzes
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Extended Response – Economics: TOPIC: Interest Rates and The RBA Question: Analyze the factors that influence the level of interest rates and the role of the Reserve Bank of Australia in determining the cash rate: In economics there are numerous amounts of factors that influence the levels of interest rates in the economy. Overall there are six major factors that influence the levels of the rates; these include the state of the economy‚ inflation‚ the Reserve Bank of Australia (RBA) movements
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of each annuity payment. B. The present value of an annuity is unaffected by the number of the annuity payments. C. The present value of an annuity increases when the interest rate decreases. D. The present value of an annuity increases when the interest rate increases. E. The future value of an annuity increases when the interest rate decreases. 4. A debenture is: A. long-term debt secured by fixed assets of the borrower. B. unsecured debt that generally matures in less than ten years. C. unsecured
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Raising the Interest Rate Principles of Finance Introduction After years of declining interest rates‚ we are facing a dilemma; should the Federal government increase rates to contain inflation‚ or keep rates low to boost the US economy? Increases in consumption of oil‚ metals‚ materials‚ and food‚ both foreign and domestic‚ are increasing demand. Prices are rising on a global scale as demand increases. Additionally‚ the US is experiencing rising costs for healthcare and education. Yet‚ the
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Equipment Rental paid $75 in dividends and $511 in interest expense. The addition to retained earnings is $418 and net new equity is $500. The tax rate is 35 percent. Sales are $15‚900 and depreciation is $680. What are the earnings before interest and taxes? Net Income: 75+418=493 75+418493/ (1-0.35) =758 Earnings before interest and taxes= 758.46+511= 1269 3. Winston Industries had sales of $843‚800 and costs of $609‚900. The firm paid $38‚200 in interest and $18‚000 in dividends. It also increased
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percent interest‚ compounded annually. How much will your account be worth in 15 years? a. $2‚030.21 b. $5‚000.00 c. $8‚091.12 d. $8‚354.50 e. $9‚020.10 FV of a single payment Answer: c Diff: E . You deposit $1‚000 in a savings account that pays 9 percent interest‚ compounded annually. How much will your account be worth in 6 years? a. $1‚054.00 b. $1‚199.00 c. $1‚677.10 d. $1‚689.48 e. $7‚523.33 PV of a single payment Answer: b Diff: E . You can earn 8 percent interest‚ compounded
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1 Answer all questions (show workings to earn full marks) 1. Your sister requires tuition of $18500 ten years from now when she goes to college. If the interest rate is 5% per year‚ annually compounded‚ find how much you will have to invest today to get that amount. 2. You triple $500 in 3 years. compounding? What is the annual interest rate‚ assuming annual 3. Suppose your company expects to increase unit sales of watches by 15% per year for the next 5 years. If you currently sell 3
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Investment w/o Risk: Inflowoutflow-1>r R=Δpp0+cfp0 PV:V0=Vt1+kt=Vt*PVIF(k;t) FV: Vt=V0*1+kt=V0*FVIF(k;t) keffective=kstatedm‚ k stated over year:APR Gross Interest Rate: 1+k Going from one EAR to other: 1+kx month eff.yx-1=[1+ky month eff.] Compounded to EAR … use this… also‚ less than a year to annual (special case): EAR=1+kstatedmm-1 EPR=1+APRmmt Continuous Compounding: Vt=etkc--- if the $ is received in one year then the formula is: V0=e-tkc‚ t-years and not periods and kc-discount
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CHAPTER 2 How to Calculate Present Values Answers to Problem Sets 1. If the discount factor is .507‚ then .507*1.126 = $1 2. 125/139 = .899 3. PV = 374/(1.09)9 = 172.20 4. PV = 432/1.15 + 137/(1.152) + 797/(1.153) = 376 + 104 + 524 = $1‚003 5. FV = 100*1.158 = $305.90 6. NPV = -1‚548 + 138/.09 = -14.67 (cost today plus the present value of the perpetuity) 7. PV = 4/(.14-.04) = $40 8. a. PV = 1/.10 = $10 b. Since the perpetuity
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today at a specific interest rate so that when you withdraw an equal amount each period‚ the original principal and all accumulated interest will be completely used at the end of the annuity. Present Value of an Ordinary Annuity= Payment [(1 - (1 / (1 + Discount Rate per period)number of periods)) / Discount Rate Per Period] Future value measures the nominal future sum of money that a given sum of money is "worth" at a specified time in the future assuming a certain interest rate‚ or more generally
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