finance Time Value of Money(2)

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1、Finance(principles)215TutorialquestionsandsolutionsChapter3TimeValueofMoney:AnIntroductionProblem4SupposeBankOneoffersarisk-freeinterestrateof5.5%onbothsavingsandloans,andBankEnnoffersarisk-freeinterestrateof6%onbothsavingsandloans.a.Whatarbitrageopportunity

2、isavailable?b.Whichbankwouldexperienceasurgeinthedemandforloans?Whichbankwouldreceiveasurgeindeposits?c.Whatwouldyouexpecttohappentotheinterestratesthetwobanksareoffering?a.TakealoanfromBankOneat5.5%andsavethemoneyinBankEnnat6%.b.BankOnewouldexperienceasurge

3、inthedemandforloans,whileBankEnnwouldreceiveasurgeindeposits.c.BankOnewouldincreasetheinterestrate,and/orBankEnnwoulddecreaseitsrate.Problem7Bubbaisashrimpfarmer.Inanironictwist,Bubbaisallergictoshellfish,sohecannoteatanyshrimp.Eachdayhehasone-tonsupplyofshr

4、imp.Themarketpriceofshrimpis$10,000perton.a.Whatisthevalueofatonofshrimptohim?b.Wouldthisvaluechangeifhewerenotallergictoshrimp?Whyorwhynot?a.ThevalueofonetonofshrimptoBubbais$10,000becausethatisthemarketprice.b.No.Aslongashecanbuyorsellshrimpat$10,000perton

5、,hispersonalpreferenceoruseforshrimpisirrelevanttothevalueoftheshrimp.7Finance(principles)215TutorialquestionsandsolutionsProblem11Afriendaskstoborrow$55fromyouandinreturnwillpayyou$58inoneyear.Ifyourbankisofferinga6%interestrateondepositsandloans:a.Howmuchw

6、ouldyouhaveinoneyearifyoudepositedthe$55instead?b.Howmuchmoneycouldyouborrowtodayisyoupaythebank$58inoneyear?c.Shouldyouloanthemoneytoyourfriendordeposititinthebank?a.Ifyoudepositthemoneyinthebanktodayyouwillhave:b.Ifyoulendthemoneytoyourfriendforoneyearandb

7、orrowagainstthepromised$58repayment,thenyoucouldborrow:c.Fromafinancialperspective,youshoulddepositthemoneyinthebank,asitwillresultinmoremoneyforyouattheendoftheyear.Problem16Calculatethefuturevalueof$2000ina.Fiveyearsataninterestrateof5%peryear.b.Tenyearsat

8、aninterestrateof5%peryear.c.Fiveyearsataninterestrateof10%peryear.d.Whyistheamountofinterestearnedinpart(a)lessthanhalftheamountofinterestearnedinpart(b)?a.Timeline:01252000FV=?7Finance(principl