1 Mr. Free has 80 in income this year and will have zero income next year. The market

Chapter 1 1) Mr. Free has $80 in income this year and will have zero income next year. The market interest rate is 10 percent per year. If Mr. Free consumes $20 this year and invests the rest in the market, what will be available for his consumption next year?

A) $39

B) $44

C) $66

D) $89

2) Mr. Bird has $120 in income this year and will have zero income next year. The market interest rate is 10 percent per year. Mr. Bird also has an investment opportunity in which he can invest $60 today and receive $102 next year. Suppose Mr. Bird consumes $30 this year and invests in the project. How much will be available for his consumption next year?

A) $113

B) $115

C) $133

D) $135

3) Ms. Venus has $120 in income this year and will have $150 next year. The market interest rate is 10 percent per year. Suppose Ms. Venus consumes $60 this year. How much will be available for her consumption next year?

A) $182

B) $216

C) $232

D) $272

4) Mr. Thomas has $120 in income this year and will have zero income next year. The market interest rate is 10 percent per year. Mr. Thomas also has an investment opportunity in which he can invest $60 this year and receive $58 next year. Suppose Mr. Thomas consumes $50 this year and invests in the project. What will be his consumption next year?

A) $39

B) $44

C) $69

D) $99

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2 5) Mr. Dell has $110 in income this year and will have zero income next year. The expected return from investing in the stock market is 10 percent a year. Mr. Dell also has an investment opportunity—having the same risk as the market in which he can invest $30 this year and receive $94 next year. Suppose Mr. Dell consumes $50 this year and invests in the project. What is the NPV of the investment opportunity?

• $0
• $6

C) $35.45

• none of the options

6) Ms. Delgado has $80,000 in income this year and will have $60,000 next year. The market interest rate is 10 percent per year. Suppose Ms. Delgado consumes $100,000 this year. How much will be available for her consumption next year?

A) $38,000

B) $40,000

C) $80,000

D) $90,000

7) Ms. Newcastle has $60,000 in income this year and will have $47,000 next year. The market interest rate is 10 percent per year. Suppose Ms. Newcastle wishes to consume $76,700 next year. How much will she be able to consume this year?

A) $26,700

B) $33,000

C) $74,700

D) $84,700

8) Mr. Cobb has an income of $50,000 this year and will have $60,000 next year. He can invest in a project that costs $40,000 this year, which generates an income of $46,000 next year.The market interest rate is 10 percent. What will be available for his consumption next year if Mr. Cobb invests in the project and consumes $71,000 this year?

A) $50,000

B) $38,900

C) $80,000

D) $48,900

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3 Answer Key

Test name: chapter 1 (1)

1) C 2) D 3) B 4) C 5) C 6) A 7) B 8) B .