Question

TU JUICIU on the investment the com- LU00 on December 31, 2006. Investors expecta 10-2 AS Company buys a marketable security on January 1, 2002, that is expected to pay off $1,000 on December 31, 2005. AS believes a 7% interest rate is appropriate Required: a. Determine how much AS paid for the security. b. Fill in the following chart with the economic value of the security on the dates indir cated, assuming that events unfold as expected. 1/1/02 Date 12/31/02 12/31/03 12/31/04 12/31/05 Value

Please solve the problems

Answer 1

Economic value is a measure of the benefit provided by a good or service to an economic agent. ... If a consumer is willing to buy a good, it implies that the customer places a higher value on the good than the market price. The difference between the value to the consumer and the market price is called "consumer surplus".

We were given the Interest amount and used it to find the amount of Principle. What if we already know the interest rate, amount of interest, and amount of time, but we need to find out the principal amount. We can rearrange the interest formula, I = PRT to calculate the principal amount.

I= Interest Amount

P=Principle Amount

R=Rate

T=Time

I = PRT

1000=p*0.07*4

P=$3571

AS paid $3571 For security

Date	01-01-2002	31-12-2002	31-12-2003	31-12-2004	31-12-2005
Value	3571	3821	4071	4321	4571
	Interest of 4 years is 1000
	Interest of 1 years is 1000/4=$250
	So Value will increase by 250 each year

Answer 2

Economic value is a measure of the benefit provided by a good or service to an economic agent. ... If a consumer is willing to buy a good, it implies that the customer places a higher value on the good than the market price. The difference between the value to the consumer and the market price is called "consumer surplus".

We were given the Interest amount and used it to find the amount of Principle. What if we already know the interest rate, amount of interest, and amount of time, but we need to find out the principal amount. We can rearrange the interest formula, I = PRT to calculate the principal amount.

I= Interest Amount

P=Principle Amount

R=Rate

T=Time

I = PRT

1000=p*0.07*4

P=$3571

AS paid $3571 For security

Date	01-01-2002	31-12-2002	31-12-2003	31-12-2004	31-12-2005
Value	3571	3821	4071	4321	4571
	Interest of 4 years is 1000
	Interest of 1 years is 1000/4=$250
	So Value will increase by 250 each year