If you were to receive \$1,166.40 in two years and the appropriate discount rate was 8 percent, the present value would be \$1,166.40/(1.082) = \$1000. Using your own numbers, provide some examples showing the calculation of the present value of a future payment.

ECO 372 Week 2 Discussion Question Worksheet

Reference: Mankiw, N. Gregory (2015). Principles of Macroeconomics (7th ed.). Stamford, CT: Cengage Learning.

Instructions: Minimum of 150 words for each question with in-text citation and reference

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Principles of Macroeconomics, Ch. 13: Saving, Investment, and the Financial System
The economy is moving into a period with higher nominal interest rates. How is this likely to affect bond prices? Based on this, is having an undiversified portfolio 100% in bonds a wise move?

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Principles of Macroeconomics, Ch. 14: The Basic Tools of Finance

Question 1:
Your company is considering a project which would generate revenue in future years. To finance the project you would need to borrow funds today. To determine if the project is worthwhile you compare the present value of the future stream of revenue (or more precisely net profits), to the current cost of the project. In calculating the present value, you use the interest rate that you would need to pay for borrowed money.

Will a higher or lower interest rate make the project more likely to be worthwhile?

If you were a policymaker and wanted to encourage businesses to make investments in new projects, would you want to increase or decrease the interest rate for borrowed funds?

Question 2:

If you put \$1000 into an account paying 8 percent interest (compounded annually), you would have \$1000 x 1.08 = \$1,080 in one year and \$1000 x 1.08 x 1.08 = \$1,000 x 1.082 = \$1,166.40 in two years.

If you were to receive \$1,166.40 in two years and the appropriate discount rate was 8 percent, the present value would be \$1,166.40/(1.082) = \$1000.

Using your own numbers, provide some examples showing the calculation of the present value of a future payment.

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Principles of Macroeconomics, Ch. 15: Unemployment

Question 1:

From roughly 2009 through 2015 the labor force participation rate fell. See the graph at: https://fred.stlouisfed.org/series/CIVPART for the civilian labor force participation rate. In the upper-right of that web page you can search for other data. Type in labor force participation and take a look at a few of the data series and graphs available. Try to find ones that have been ‘seasonally adjusted.’ Share your findings for a particular age group or demographic. You can share your graph by copying the URL for a page.

Question 2:
Why might people in the 20-24 age group have dropped out of, or stayed out of, the labor market between the years of 2009-2015?

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