Average Annual Growth Rates

a) Relate K to z. Discuss how they should be related theoretically and how they appear to be related empirically (numbers in the table).

b) Relate K to Y. Discuss how they should be related theoretically and how they appear to be related empirically (numbers in the table).

The accompanying data table show the percentage of tax returns filed electronically in a city from 2000 to 2009. Complete parts a through e below.

Year   Percentage
2000   25
2001   33
2002   37
2003   38
2004   48
2005   50
2006   55
2007   59
2008   62
2009   64

a) Forecast the percentage of tax returns that will be electronically filed for 2010 using exponential smoothing with alpha= 0.1.

​b) Calculate the MAD for the forecast in part a.

c) Forecast the percentage of tax returns that will be electronically filed for 2010 using exponential smoothing with trend adjustment. Set alpha= 0.3 and beta= 0.4.

​d) Calculate the MAD for the forecast in part c.

Aggregate Expenditure

Consider the following AE model:

C=.80Y_d+ 200   Y_d = Y – T    I=125 G=200 T=150 M=100 X=50

1. Find the following:

2. Using the ∆RGDP equation, compute the new Y* if autonomous consumption is decreased by 50.

3. Assume that Y_FE = 2000. Compute the ∆G necessary to make Y* = Y_FE.

4. Assume that Y_FE = 2000. Compute the ∆T necessary to make Y* = Y_FE.

A firm is considering the following two competing proposals for the purchase of new equipment.

Assume straight-line depreciation and a tax rate of 20 percent.

(a) Calculate the net present value of each alternative at a discount rate of 10 percent.

(b) If 10 percent is the required rate of return, which alternative should be selected? Why?

Please show all steps. Don't round off until you get to the end.

Tom owns 22 hotdog stands.

Tom earned $10,000 last year from the hotdog stands business.

For $4000, Tom can build two more stands, each stand costs $2000. Assume it costed Tom $2000 to build each of 22 stands.

If Tom has 24 stands instead of 22, its yearly income will rise from $10,000 to $11,000. Let’s assume Tom indeed added two more stands using the money he earned last year.

David

Everything is the same except for David borrows $4000 at 6% interest rate to finance two more stands. What would be ROE for David's plan?   

24.4%

14.8%

18.3%

12.2%

Suppose the table gives the number N(t), measured in thousands, of minimally invasive cosmetic surgery procedures performed in the United States for various years t.

t N(t)(thousands)

(b) Construct a table of estimated values for N'(t). (Use a one-sided difference quotient with an adjacent point for the first and last values, and the average of two difference quotients with adjacent points for all other values. Round your answers to two decimal places.)

1. The table below gives the annual total returns on Global Balanced Index Fund from 1999 to 2008. The returns are in the local currency. Use the information in this table to answer the following questions:

a. Calculate the mean absolute deviation (MAD).

2. Calculate the variance.

3. Calculate the standard deviation.

d. Calculate the semi variance (the average squared deviation below the mean), a measure of downward risk.

1. Name a US government agency that publishes data of CPI and unemployment and provide a URL link for each of the two variables that leads you to the data.

2. Calculate the inflation rate between year a) 1999 and 2000, b) 2000 and 2001 given the following CPI:

CPI (1999)= 89, CPI (2000)=100, CPI (2001)=107

3. Suppose the nominal output of year 1999 was $3200 and the real output of year 1999 was $3600, calculate the GDP deflator of year 1999.

4. Suppose the CPI in Maryland is 110 and the CPI in Texas 1999 is 100 and you are given that the nominal income in Texas is $5000 while the nominal income in Maryland is $5100. Suppose you are given a job offer in each state. Which offer should you take if you are indifferent about the different environment in each state? Explain your answer thoroughly and include necessarily calculations or numbers.

5. Suppose the CPI of the US in 1990 was 120 and the CPI in 2003 was 200. For how much could a car that cost $20,000 in 2003 have been bought in 1990? Explain your answer thoroughly and include necessarily calculations or numbers.

6. If the real interest rate is 5% and inflation rate is 3 %, what is the nominal interest rate?

2 Franchise Value ( Show all work)

a) Suppose that Mark Cuban wants to purchase the Mavericks in 2000 (call this year 0), and he expects to receive $400,000 in profits in years 1, 2, and 3 (each year). Now suppose that value of the Mavericks in year 3 is $500 million and that the interest rate is 4%. What is price that Mark would pay to make him break even in 3 years (i.e. that makes E[B] – p =0)?

b) Now, suppose that Mark Cuban plans to purchase the Mavericks in 2000 for $285 million and he expects to receive $400,000 in profits in years 1, 2, and 3 (each year). Now suppose that the interest rate is 4%. What would be the value of the Mavericks in 3 years that would make Mark break even?

c) Finally suppose Mark plans to purchase the Mavericks at $285 million in 2000. The value of the mavericks will be $500 million in 3 years and the interest rate is 4%. Suppose the expected profits for years 1, 2, and 3 is x (i.e. Mark expects to receive x in year 1, x in year 2, and x in year 3). What is value of x that would make Mark break even?