48. Each of the following factors will tend to INCREASE the supply of Loanable Funds a....

48. Each of the following factors will tend to INCREASE the supply of Loanable Funds

a. Individuals save more
b. Lenders are optimistic about future business prospects
c. The Federal Reserve increases interest rates
d. The Federal Reserve conducts open-market operations and buys government securities

49. Warren Buffett, one of the greatest investors, has earned roughly 20% per year for about 50 years. You win the lottery which will pay you $50 million in 50 years. If the discount rate is 20% per year, which of the following is closest to how much is your winnings worth today?

a. $50 million

b. $5,000
c. $1 million

d. $5 million

Solutions

Expert Solution

Answer 49)

Year	Discounting factor @20%
1	0.833333333
2	0.694444444
3	0.578703704
4	0.482253086
5	0.401877572
6	0.334897977
7	0.279081647
8	0.232568039
9	0.193806699
10	0.161505583
11	0.134587986
12	0.112156655
13	0.093463879
14	0.077886566
15	0.064905472
16	0.054087893
17	0.045073244
18	0.037561037
19	0.031300864
20	0.026084053
21	0.021736711
22	0.018113926
23	0.015094938
24	0.012579115
25	0.010482596
26	0.008735497
27	0.007279581
28	0.006066317
29	0.005055264
30	0.00421272
31	0.0035106
32	0.0029255
33	0.002437917
34	0.002031597
35	0.001692998
36	0.001410831
37	0.001175693
38	0.000979744
39	0.000816453
40	0.000680378
41	0.000566982
42	0.000472485
43	0.000393737
44	0.000328114
45	0.000273429
46	0.000227857
47	0.000189881
48	0.000158234
49	0.000131862
50	0.000109885

	Hence If We receive 50 Million $ at end of 50 Years then we receive 50*0.000109885
	0.005494	Million Dollars or 5494$ Aprox
	Hence Correct answer is b) 5000$ as it is Closest to 5494$

jeff jeffy answered 1 year ago

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