1. The population of China is currently 1,040 million while India has 750 million people. The yearly growth rates are currently 1.3% and 2.5% respectively. What will be the population in the two countries in 2025 if the current growth rates continue throughout this period? How much will the population in the two countries be reduced if they are successful at reducing the average growth rates by 50%?.
2. How much should you pay for a piece of paper that promises to pay you $10,000 three years from today if you anticipate interest rates to be 8% over the period?
3. If the inflation of housing prices continues at a rate 25% higher than the rate of inflation in consumer prices, what can we expect the median price of a house to be in 20 years if the rate of inflation over this period averages 8% and the median price is $90,000?
4.If wages and prices are expected to grow at an annual rate of 6% and 5%, respectively, what will have happened to real wages in ten years?
5. The CPI (Consumer price index) at the end of 1989 was 378. At the end of 1969 and 1979 the figures were 109.8 and 217.4. What were the average yearly inflation rates for the 70s and the 80s.
6. What is the most you should pay for a safe IOU that promises to pay you $11,000 thirty years from now and $1000 at the end of each of the next 29 years if you expect the interest rate to remain at 8%. What would be your answer if the interest rate were 12%? 10%?
7. The level of government expenditures (in 82 dollars) at the end of 1989 was $950 billion. At the end of 1969 and 1979 the figures were $509 billion and $699 billion. What were the average yearly growth rates for the 70s and the 80s?
8. In the period 1972 - 1990, the CPI excluding medical costs has increased from 41.1 to 133.8 while the CPI for medical expenses has increased from 36.7 to 169.2. What was the average yearly increase in the rate of inflation for medical and non medical? If medical expenditures account for 12 % of current expenditures(1990), what percentage will they account for in the year 2020 if they both continue to grow at their historical rates?
9. A company is considering an array of investment projects. One of the projects they are evaluating involves the purchase of a new high speed machine that will generate a substantial increase in sales. The expectation is for sales next year to total $1,200. Sales are then expected to grow 6.5% per year for the next twelve years. The machine can be paid for in either of two ways. The first, involves a cash payment of $14,000. The second involves a down payment of $3,000 and yearly payments of $1,500 per year for the next ten years for a total payment of $18,000. The interest rate is expected to average 8% over the life of the machine.
a. You are to determine the least cost method of buying the machine.
b. You are to determine whether the investment should be made. What are the present values of the sales and costs?
c. How would your answer change if the expected interest rate rose to 12%.?
d. How would your answer change if the expected interest rate rose to 5%. ?
You are to include in your answer the spreadsheet printout for each of the computations.
10. The extension of a city road has made it necessary for the city to purchase a parcel of land adjacent to a church's cemetery. The land is owned by the church which has always intended to use this land to expand the cemetery. At the present time the church intends to sell 10 plots per year on the parcel as long as there is available land. The church, which is currently selling the plots at $400 a piece, has estimated that the parcel can be divided into 300 plots. What should the city pay the church if the church wants a fair market value where the value is defined as an amount equal to the value of the total sales of the property? You are to write a one page report stating your final figure and your rationale for the figure. I want to see the computations and be prepared to present your findings to the class.
11. What is a person likely to make over their lifetime? This is the question which you will be examining in this question. Your job is to determine the stream of future earnings of someone who can be expected to work for 40 years. To answer this question, you must look at the statistics regarding average income disaggregated by education. Be aware of the fact that you will have to make some assumptions before you can begin to answer these questions. Also be sure that you realize that you will be evaluated on the defensibility of your assumptions.
Part A. Calculate the stream of future earnings for someone with less than a high school education, a high school graduate, and a college graduate.
Part B. You are to use the stream of future earnings which you generated in part B and determine the stream of real earnings. Stated somewhat differently, you are to calculate a stream of future earnings after they have been adjusted for inflation.