Explain the difference between saving and investment as defined by a macroeconomist. Which of the following situations represent investment and which represent saving? Explain. a. Your family takes out a mortgage and buys a new house. You use your $200 paycheck to buy stock in Africel. Your roommate earns $100 and deposits it in his account at a bank. You borrow $1,000 from a bank to buy a car to use in your pizza delivery business.
Explain the difference between saving and investment as defined by a macroeconomist. Which of the following situations represent investment and which represent saving? Explain.
a. Your family takes out a mortgage and buys a new house.
You use your $200 paycheck to buy stock in Africel.
Your roommate earns $100 and deposits it in his account at a bank.
You borrow $1,000 from a bank to buy a car to use in your pizza delivery business.
The interest rate is 7 percent. Use the concept of present value to compare $200 to be received in 10 years and $300 to be received in 20 years.
A company has an investment project that would cost $10 million today and yield a payoff of $15 million in 4 years.
Should the firm undertake the project if the interest rate is 11 percent? 10 percent? 9 percent? 8 percent?
Can you figure out the exact cutoff for the interest rate between profitability and nonprofitability?
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