Question

e cmemptis.nde Homework 1 1. What word describes compensation paid or received for "renting" money? 2. What is meant by the term minimum attractive rate of return (MARR? 3. At an interest rate of 8% per year, $50,000 one year from now is equivalent to what amount now? 4. A local developer invested S10 million in an apartment complex one year ago. Since then, they have 4. earned profits of $1,250,000. What annual rate of return does this represent? 5. What annual interest rate makes $2.00 today economically equivalent to S2.36 one year from now?

Answer 1

1. Compensation received or paid for renting money is known as "Interest"

Interest is paid on loan taken and earned on loan given.

2. MARR is the minimum return that is required from any investment. If any investment opportunity earns less than MARR, then the investment is not attractive and hence not acceptable.

3. $50,000 one year later, equivalent amount today = $50,000/(1.08)

= $46,296.30

4. Annual Rate of Return = 1,250,000/10,000,000

= 12.5%

5. Let the interest rate be x

2(1+x) = 2.36

X = 18℅