Quiz 34: Interest Rates and Monetary Policy


Remember that the formula for compound interest is: img . We are given that we have $100 today, and the interest rate is 4 percent img . We want to find out how much this $100 would be in img years. Substituting into the expression, we have: img In other words, img Rounded to the nearest full dollar, we have $100 today is equal to $117 dollars in 4 years.

The investments that are used to fuel to development of the economy are known as economic investment. In other words, economic investment is when investor is investing in capital (produced means of further production). Financial investment is an asset that an investor put money into it with the hope that it will grow. In other words, financial investment is putting money into businesses rather than another form of involvement of the business. In this case, City-NY is making an economic investment by issues bonds to raise money to pay for a new tunnel linking New Jersey and Manhattan because it refers to paying for the new addition to capital An investor named-SU buys one of the bonds on the same day that the city of New York pays a contactor for completing the first stage of construction. Investor is making a financial investment because it involves purchase of a financial asset to finance the project for the City-NY.

To find the present value of $100,000 in two years at an interest rate of 10 percent, we need to use the present value formula: img . Substituting $100,000 for X , 0.1 for i, anD2 for t, we have: img . Calculating the left hand side, we have: img . Rounding to the nearest full dollar, we have $82,645 today is equal to $100,000 in 2 years, at an interest rate of 0.1.

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