Quiz 17: Financial Economics

Business

The future value ( FV ) of the investment is calculated using the formula of future value model. The formula for this is given as: img Where "X " is the amount of money today " i " is the interest rate. " t " is the duration or the number of years. On substitution: img Thus, future value of the investment is $116. 985.

New York is making an economic investment. Recall that an economic investment refers either to paying for new additions to the capital stock or new replacements for capital stock that has worn out. The issuance of bonds is financing the new tunnel, which is an addition to society's capital stock. Susan is making a financial investment. Recall that a financial investment refers to the purchase of an asset using an existing asset. Here Susan exchanges one asset for another, say income out of her checking account for the bond. Susan has only changed her portfolio of assets.

The current value ( CV ) of the investment is calculated using the formula of present value model. The formula for this is given as: img Where "X" is the amount of money received in the future " i " is the interest rate. " n " is the duration or the number of years. On substitution: img Thus, the current value of the investment is $82,644.62.