APPENDIX: A CLOSER LOOK AT FINANCIAL ASSETS
AND LIABILITIES
1. Students gain a financial asset and the government incurs a financial liability.
2. It is a financial asset because it has value due to an offsetting liability of the
3. No. In economic terminology he is saving. Investing is the act of spending the
4. No, she is not correct. While a loan is a loan, that loan is a financial asset to the
5. $2.50.
6. $0.50
7. At 6% interest rate, $2,000 five years from now is worth $1,500 today, so take the
8. a. Market rates are likely to be above 10 percent because the price of the bond is
9. As interest rates rise, one would have to save less money today to get $100 in ten
10. Substituting into the present value formula PV = $1,060/1.1, we find that the bond
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11. Using the annuity table, we find that a dollar a year for 40 years with a 6 percent
12. Using the present-value table A29-1, we see that at a 3 percent interest rate, the
13. Since we’re not sure how long your expected lifetime is, we can use the annuity
rule which says that the present value of an annuity is the flow of income divided
by the interest rate, which in this case would be $200/.09 = $2,222.22. You should
14. If the interest rate is still 9 percent, the value of a lump sum of $20,000 in 10
15. To find the present value of a perpetuity of $100 per year, use the annuity rule,
a. Using the same interest rates, the future values of $100 are: $110 in one year and
b. Using the rule of 72, your money will double in: about 7.2 years at 10 percent,
16. a. Agree and disagree. Technically, a rise in stock prices does not imply a richer
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© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
b. Disagree. If both the real and financial assets are worth $1 million, then they have
c. Disagree. Financial assets facilitate trades that could not otherwise have taken
d. Disagree. The value of an asset depends not only on the quantity but also on its
e. Disagree. The stock market valuation depends on the supply and demand for
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© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.