Exam 4: Financial Markets and Net Present Value: First Principles of Finance

An individual has income of $10,000 in period 0 and $25,000 in period 1.An investment opportunity that costs $10,000 in period 0 is worth $10,500 in period 1.The market interest rate is 8%.What is the maximum possible consumption in period 1 if the individual consumes $20,000 in period 0 and the individual follows the NPV rule?

Diagrams illustrating the consumption choices for a corporation show the two period trade-off as originating in the northwest quadrant,or (-X,Y),because:

Which of the following is not true?

The consumption opportunity set moves further out when an investment is available because:

You have an investment opportunity available to you that requires $400,000.You have no funds available but you will have income of $120,000 this year.The investment will have a net payoff $33,000 at the end of the year.If the market rate is 7.5% will you make the investment?

An individual has income of $15,000 in period 0 and $20,000 in period 1.An investment opportunity that costs $10,000 in period 0 is worth $11,500 in period 1.The market interest rate is 8%.What is the maximum possible consumption in period 0 if the individual consumes $26,000 in period 1?

The separation theorem says that:

An individual has income of $20,000 in period 0 and $42,000 in period 1.An investment opportunity that costs $15,000 in period 0 is worth $18,000 in period 1.The market interest rate is 6%.What is the maximum possible consumption in period 1 if the individual consumes $16,000 in period 0 and follows the NPV rule?

At what market rates of interest would make the individual indifferent between (1)all consumption in Period 0 and none in Period 1 and (2)no consumption in Period 0 and all consumption in Period 1?

An individual has $60,000 income in period 0 and $30,000 income in period 1.If the individual desires to consume $19,000 in period 1 and the market interest rate is 8%,what is the maximum amount of consumption in period 0?

If the amount of money to be lent is exactly equal to the amount desired to be borrowed then the market is cleared at:

The financial market rate is 5%.Graph and explain the investment choice the corporation should make.(Hint: Determine the NPV.)NPV = -42,000 + (46,900/1.05)= -

Which of the following statements is true?

An individual with no investment opportunities has income of $15,000 in period 0 and income of $10,000 in period 1.If the interest rate is 7%,which of the following points is on the individual's consumption possibility line?

A financial instrument,by its possession,that entitles the holder to receive the payments are called:

According to the net present value rule,an investment should be made if:

Financial markets develop to accommodate _________ between individuals.

The following statement,that the value of an investment to an individual is not dependent on consumption preferences,is called the:

You have an investment opportunity available to you that requires $400,000.You have no funds available but you will have income of $120,000 this year.The investment will have a payoff $433,000 at the end of the year.If the market rate is 8.25% what is the net present value?

Components of a loan which is fully paid back are: