Suppose your New Year's resolution is to get back in shape. You are considering various ways of doing this; you can sign up for a gym membership, walk to work, take the stairs instead of the elevator, or watch your diet
How would you evaluate these options and choose an optimal one?
You can use cost-benefit analysis to compare the various feasible alternatives and pick the best one. Cost-benefit analysis is a calculation that adds up costs and benefits using a common unit of measurement, like dollar values. The costs and benefits of using the gym, walking, taking the stairs, or dieting need to be converted into dollar values. This will include monetary as well as opportunity costs. You can then choose the option that offers you the greatest net benefit.
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Assume a bank has $200 million of assets with a duration of 2.5, and $190 million of liabilities with a duration of 1.05. If interest rates increase from 5 percent to 6 percent, the net worth of the bank falls by
A) $1 million. B) $2.4 million. C) $3.6 million. D) $4.8 million.
Suppose you have one U.S. dollar with which you wish to purchase U.K. (one-year) bonds in period t. Which of the following expressions represents the amount of U.K. pounds you will receive in one year (i.e., period t + 1 ) from purchasing U.K. bonds in period t?
A) i B) 1 + i C) (1 + i)Eet+1/Et D) (1 + i)Et/Eet+1 E) none of the above