var imagesXXXlarge = ",,,"; var imagesXlarge = ",,,"; var imagesLarge = ",,,,,"; var imagesSmall = "krugmanap2e-ch24-fig-4,,,"; var imagesMedium = ",,,,,"; xBookUtils.showAnswers['krugmanapecon2e_mod24_cyu_1a'] = "The net present value of project A is unaffected by the interest rate since it is money received today; its present value is still $100. The net present value of project B is now −$10 + $115/1.02 = $102.75. The net present value of project C is now $119 − $20/1.02 = $99.39. Project B is preferred."; xBookUtils.showAnswers['krugmanapecon2e_mod24_cyu_1b'] = "When the interest rate is lower, the cost of waiting for money that arrives in the future is lower. For example, at a 10% interest rate, $1 arriving one year from today is worth only $1/1.10 = $0.91. But when the interest rate is 2%, $1 arriving one year from today is worth $1/1.02 = $0.98, a sizable increase. As a result, project B, which has a benefit one year from today, becomes more attractive. And project C, which has a cost one year from today, becomes less attractive."; xBookUtils.showAnswers['krugmanapecon2e_mod24_fr_2_rubric'] = "
Rubric for FRQ 2 (4 points)
1 point: $1,157.63
1 point: $1,000 × (1.05)3 = $1,000 × 1.16 = $1,157.63
1 point: $863.84
1 point: $1,000/(1.05)3 = $863.84
";