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A couple in Ruston, Louisiana, must decide whether it is more economical to buy a home or to continue to rent during an inflationary period. The couple rents a one-bedroom duplex for $450 a month plus $139 a month in basic utilities (heating and cooling). These costs have a projected inflation rate of 5%, so the couple's monthly costs per year over a 10-year planning horizon are The couple would like to buy a home that costs $75,000. A local mortgage company will provide a loan that requires a down payment of 5% plus estimated closing costs of 1% cash. The couple prefers a 30-year fixed-rate mortgage with an 8% interest rate. The couple falls in the 30% marginal income tax rate (federal plus state), and as such, buying a home will provide them some tax write-off. It is estimated that the basic utilities for the home inflating at 5% will cost $160 per month; insurance and maintenance also inflating at 5% will cost $50 per month. The home will appreciate in value about 6% per year. Assuming a nominal interest rate of 15.5%, which alternative should the couple select? Use a present worth analysis. (Note: Realtor's sales commission here is 5%.)
Revenue-sharing in professional sports. Assume that there are two grades of professional football players. There are a limited number of “stars,” whom the fans most want to watch, and an unlimited number of “non stars.” There are too few stars to ful..
If his investment in a mutual fund will earn him 11.45 percent annually, how much will he have saved in eight years when he buys his house?
In many Sub-Saharan African countries, girls have lower enrollment rates in secondary schools than do boys.
Suppose that an economy’s production function is cob-douglass with CRS(Y=AK^α * L^1-α ) and α=.3. What fractions of income do capital and labor receive? Suppose that the capital stock decreases by 15 percent. How much does output increase or decrease..
The price of a 10-year bond can decline by approximately 9% if interest rates rise by 1% point. To illustrate this, suppose you own a 10-year U.S. Treasury bond that has a bond rate of 2% per year. How much money will you lose if the value of the bon..
Some part of income inequality is likely to be the result of discrimination. But other factors responsible for inequality include (select as many as apply):
FedEx can purchase a large-volume copier for $18,000 and depreciates it by straight-line depreciation. FedEx has a 35% combined incremental tax rate. If FedEx requires a real 9% after-tax rate of return on its investments, should the firm purchase th..
What is Kohlberg's theory about and what are the key elements? Does blowing the whistle violate company loyalty? I need both yes and no answer. What is the chance of rolling a 7 with a pair of honest dice? Is this a case of risk or uncertainty? What ..
Using the model of the money market for the case of the interest rate control, shift the appropriate curve(s) to show the impact of a decrease in the interest rate caused by an expansionary change in monetary policy. Explain fully the changes in mone..
A bond with 20 years remaining has a face value of $1000 and a coupon rate of 15%. Assume that the bond payments are annual and the coupon was just paid.(a) What is the yearly coupon payment?(b) What is the price of the bond if it has a 6% yield to m..
Consider a perfectly competitive industry with the following information. how is a long run equilibrium characterized.
An artist makes a beautiful instrument that becomes famous throughout the country. A number of claimants arise, each of whom argues that they deserve the flute: the artist who created it, the most talented musician, the poorest musician, the neediest..
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