Question

she can Invest up to $2,000. Here are the rates of return Three students have each saved $1,000. Each has an investment opportunity in which he on the students' investment projects: Student Darnell Jacques Return (Percent) 8 13 Kyoko 24 Assume borrowing and lending is prohibited, so each student finance his or her own investment project. Complete the following table with how much each student will have a year later when the project pays its return. Student Darnell Jacques Kyoko Money a Year Later (Dollars) 1,080 1130 1,240 Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rater. If a student's expected rate of return is greater than r, he or she would choose to borrow

Please check my work for the first photo as well! options are (borrow and lend where i selected borrow).

Answer 1

Solution:-

At this rate of return pay-outs of projects in one year :-

Student	Money a Year Later
Darnell	1080
Jacques	1130
Kyoko	1240

If a student’s expected rate of return is Greater than r, he or she would choose to Borrow.

If interest rate is 10% then the quantity of loanable fund is $1000 i.e. only Darnell would want to lend and quantity demanded would be $2000 as both Jacques and Kyoko would want to borrow

If interest rate is 15% then the quantity of loanable fund is $2000 i.e. both Darnell and Jacques would want to lend and quantity demanded would be $1000 i.e. only Kyoko would want to borrow

Equilibrium interest rate is 13% At this interest rate Darnell would want to lend and Kyoko would want to borrow.

At equilibrium Interest rate:

Student	Money a Year Later
Darnell	(1000 * 1.13) = 1130
Jacques	(1000 * 1.13) = 1130
Kyoko	(2000 * 1.24 – 1000 * 1.13) = 1350

This is true :- Both lenders and borrowers are made better off. None among them is worse off.