An Investor Wants to Determine How Much Interest He Must

question 27

Multiple Choice

An investor wants to determine how much interest he must earn to be able to make the payments on a 10-year mortgage which has increasing annual payments. The problem is summarized in the accompanying spreadsheet. The investor has enough money to make an initial investment of $9,000 and hopes he can earn 12%, compounded quarterly, on his investments. He would like to know how low his annual return can be and still allow him to make his payments from interest income. What formula goes in cell C7 of the spreadsheet?

• A) =B7*(1+$C$3/4)^4-B7
• B) =B7*(1+$C$3)-B7
• C) =B7*($C$3/4)^4-B7
• D) =B7*(1+$C$3/4)^4

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Definitions:

Tacit Collusion

An agreement among competitors to act in a manner that increases profits without explicitly communicating or formalizing their actions as a pact.

Differentiated Products

Products that are similar but distinguished from each other by features, branding, quality, or other attributes.

Tacit Collusion

An unspoken arrangement between firms in a market to set prices or production levels that benefit them at the expense of market competition.

Marginal Costs

The augmented cost incurred by the production of an extra unit of a product or service.