1. Question one – Return on investment.
2. Opportunity cost in decision making.
Assignment No. 2
Academic Year:1439-1440 H
Student grade: / 3
Level of the marks:
Q.1.Three students have each saved $1,000. Each has an investment opportunity in which he
or she can invest up to $2,000. Here are the rates of return on the students’ investment
If borrowing and lending are prohibited, so each student uses only his or her
saving to finance his or her own investment project, how much will each student have a
year later when the project pays its return?
Y= I 0 + α I 0
Y= amount at the end of the year
I 0 = Autonomous investment
α = interest rate on capital
Harry’s total =1000 + 100 *1000 = $1050
Ron’s total = 1000 +
* 1000 = $1080
Hermione’s total = 1000 +
*1000 = $1200
a. Now suppose their school opens up a market for loanable funds in which
students can borrow and lend among themselves at an interest rate r. What
would determine whether a student would choose to be a borrower or lender
in this market?
For one to be a borrower, the interest rate must be less than the return on investment.
While for any student to be a lender, the interest rate must be higher than the return
on the inv...
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