You want to establish a “wasting” fund, which will provide you with $1,000 per year
for four years, at which time the fund will be exhausted. How much must you put in the
fund now if you can earn 10% interest per year?
If you invest $100 every year for the next 20 years starting one year from today and
you earn interest of 10% per year, how much will you have at the end of the 20 years?
b. How much must you invest each year if you want to have $50,000 at the end of the
20 years?
If you invest $1,000 today at an interest rate of 10% per year, how much will you have
20 years from now, assuming no withdrawals in the interim?
Describe your country’s system for financing residential housing. What are the roles played by households, businesses, and government?
Describe your country’s system for financing residential housing. What are the roles played by households, businesses, and government?
Give an example of how each of the six functions of the financial system are performed more efficiently today than they were in the time of Adam Smith (1776).
Give an example of how each of the six functions of the financial system are performed more efficiently today than they were in the time of Adam Smith (1776).
Give an example of how the problem of adverse selection might prevent you from getting financing for something you want to do. Can you think of a way of overcoming this problem?
Give an example of how the problem of adverse selection might prevent you from getting financing for something you want to do. Can you think of a way of overcoming this problem?
Give an example of how the problem of moral hazard might prevent you from getting financing for something you want to do. Can you think of a way of overcoming this problem?
Give an example of how the problem of moral hazard might prevent you from getting financing for something you want to do. Can you think of a way of overcoming this problem?
Suppose you invest in a real-estate development deal. The total investment is $100,000. You invest $20,000 of your own money and borrow the other $80,000 from the bank. Who bears the risk of this venture and why?
Suppose you invest in a real-estate development deal. The total investment is $100,000. You invest $20,000 of your own money and borrow the other $80,000 from the bank. Who bears the risk of this venture and why?
Challenge Question: While there are clear advantages to the separation of management from ownership of business enterprises, there is also a fundamental disadvantage in that it may be costly to align the goals of management with those of the owners. Suggest at least two methods, other than the takeover market, by which the conflict can be reduced, albeit at some cost.
Challenge Question: While there are clear advantages to the separation of management from ownership of business enterprises, there is also a fundamental disadvantage in that it may be costly to align the goals of management with those of the owners. Suggest at least two methods, other than the takeover market, by which the conflict can be reduced, albeit at some cost.
You are thinking of starting your own business, but have no money.
a. Think of a business that you could start without having to borrow any money.
b. Now think of a business that you would want to start if you could borrow any amount of money at the going market interest rate.
c. What are the risks you would face in this business?
d. Where can you get financing for your new business?
