Chapter 24, The Time Value of Money Video Solutions, Krugman's Economics for AP

Problem 1

Suppose, for simplicity, that a bank uses a single interest rate for loans and deposits, there is no inflation, and all unspent money is deposited in the bank. The interest rate measures which of the following?
1. the cost of using a dollar today rather than a year from now
II. the benefit of delaying the use of a dollar from today until a year from now
III. the price of borrowing money calculated as a percentage of the amount borrowed
a. I only
b. II only
c. III only
d. I and II only
e. I, II, and III

Gregory Shiver

Numerade Educator

01:05

Problem 2

If the interest rate is zero, then the present value of a dollar received at the end of the year is
a. more than $$\$ 1$$.
b. equal to $$\$ 1$$.
c. less than $$\$ 1$$.
d. zero.
e. infinite.

Carson Merrill

Numerade Educator

01:31

Problem 3

If the interest rate is $10 \%$, the present value of $$\$ 1$$ paid to you one year from now is
a. $$\$ 0$$.
b. $$\$ 0.89$$.
c. $$\$ 0.91$$.
d. $$\$ 1$$.
e. more than $$\$ 1$$.

Oluwadamilola Ameobi

Numerade Educator

01:12

Problem 4

If the interest rate is $$5 \%$$, the future value of $$\$ 100$$ lent coday is
a. $$\$ 90$$.
b. $$\$ 95$$.
c. $$\$ 100$$.
d. $$\$ 105$$.
e. $$\$ 110$$.

Carson Merrill

Numerade Educator

00:55

Problem 5

What is the present value of $$\$ 100$$ realized two years from now if the interest rate is $10 \%$ ?
a. $$\$ 80$$
b. $$\$ 83$$
c. $$\$ 90$$
d. $$\$ 100$$
e. $$\$ 110$$

Amy Jiang

Numerade Educator