A cheerleader-turned-pop-vocalist is offered a choice by her producer of either a lump sum of 20 million for all future work or a stipend of 1 million per year, payable to her and her heirs forever. She should choose the 1 million
a. no matter what the interest rate is
b. if the interest rate is greater than 20 percent
c. if the interest rate is less than 20 percent
d. if the interest rate is greater than 5 percent
e. if the interest rate is less than 5 percent
QUESTION 2Which of the following would not increase French exports to the United States?
a. an appreciation of the U.S. dollar
b. an appreciation of the euro
c. a depreciation of the euro
d. an increase in French preferences for American goods
e. an increase in real income in France
QUESTION 3The present value of a promise to pay 5,000 every year forever when the prevailing interest rate is 10 percent equals
a. 5,000
b. 50,000
c. 100,000
d. 250,000
e. 500,000
QUESTION 4If the U.S. dollar depreciates, it means that
a. the value of the U.S. dollar has increased
b. the value of foreign exchange has decreased
c. fewer U.S. dollars are required to purchase foreign exchange
d. more U.S. dollars are required to purchase foreign exchange
e. exports will immediately fall
QUESTION 5If you are receiving 2,000 per year forever, the present value of that income stream when the prevailing interest rate is 7 percent is equal to
a. 20,000
b. 62,472
c. 100,087
d. 27,000
e. 28,571
QUESTION 6If you are planning to visit wildlife preserves in Kenya, you hope the U.S. dollar appreciates against Kenya's currency.
a. True
b. False
QUESTION 7Suppose an investment will yield 1,000 after one year and 2,000 after two years. What is the present value of this investment if the discount rate is 8 percent?
a. 2,479.34
b. 2,640.60
c. 2,727.27
d. 3,000
e. 3,520
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