Final SPRING 2017 Problem 1 Problem 2 Problem

Final SPRING 2017

Problem 1

Problem 2

Problem 3

Problem 4

Problem 5

Problem 6

Problem 7

Problem 8

Problem 9

Problem 10 Michelle takes out a loan of $300, 000 today. She will pay back the loan over 300 months, with the loan amortized such that the amount of principal reduced each month is constant. How much is the third payment if the stated annual interest rate is 12%, compounded monthly? Answer: Equal reductions in principle: 300, 000 over 300 months 300, 000/300=1000 each month Monthly rate=. 12/12=. 01 Month Balance Interest Payment New Balance 1 300, 000 3, 000+1000 299, 000 2, 990+1000 298, 000 3 298, 000 2, 980+1000= 3980 ≈3975

Problem 11

Problem 12 a

Problem 12 b

Problem 13 a

Problem 13 b

Problem 14

Problem 15

Problem 16 What is a sunk cost? Describe in 40 words or less. Answer: A cost that has already occurred and cannot be reversed. What is the sunk cost fallacy described in lecture? Describe in 40 words or less. Answer: Sunk costs should be ignored when deciding whether or not to accept a project.

Problem 17

Problem 18 a

Problem 18 b