ECON 200 Lecture Notes - Lecture 14: Savings Account
22 Oct 2015
School
Department
Course
Professor
Document Summary
Practice problems: you take out a compounding interest student loan of ,000 when you begin college. You make no payments during the four years you are in school. How much do you owe when you graduate: you run a business and are considering upgrading to new methods. In 10 years, this will yield additional profits of ,000. How much are you will to spend now to upgrade: your house is worth ,000 and you have ,000 in a savings account. There is a 10 percent chance of a fire this year. If the fire occurs there will be ,000 of damage to your home. What is the expected value of your wealth at the end of the year: ,208, ,484, ,000, option 1: you pay the insurance company a premium of ,000 at the start of the year. If the fire does not occur the insurance company keeps your premium and pays you nothing.
