Q1) For a nominal interest rate of 12% compounded every four months, the actual
ID: 1164980 • Letter: Q
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Q1) For a nominal interest rate of 12% compounded every four months, the actual interest rate per compounding period is: A) 12.48696 B) 3% C) 12.551% D) 496 02) The demand-price relationship for producing an electrical switch is: D 400 4p The total annual cost (CT) for this product is: CT- 2D 240, where D is the demand per year. The demand that can maximize the revenue is: A) 177 units/year B) 124 units/year C) 196 units/year D) 200 units/year Q3) variable cost for a product per year are 40% of the annual revenue. the fixed costs for this product are $180000 per year. if the annual revenue for this product is $300000 then the annual profit/loss is: A) $120,000 (profit) B) $20,000 (profit) C) Zero D) $20,000 (loss) Q4) In economics, equity capital is: A) The capital owned by individuals who have invested their money in a business project or venture in the hope of receiving a profit B) The capital owned by individuals who have invested their property in a business project or venture in the hope of receiving a profit C) A and B above D) None of the above Q5) The total revenues for a product always increase when: A)The demand for the product increases B) The total cost of the product decreases C) A and B above D) None of the aboveExplanation / Answer
(Q1) Option (A)
Effective (actual) annual interest rate (EAR) = [1 + (r/N)]N - 1, where
r: Nominal annual rate = 12%
N: Number of times compounding is done in a year = 12/4 = 3
EAR = [1 + (0.12/3)]3 - 1 = [1 + 0.04]3 - 1 = (1.04)3 - 1 = 1.1249 - 1 = 0.1249 = 12.49%
(Q2) Option (D)
D = 400 - 4p
4p = 400 - D
p = 100 - 0.25D
Revenue (R) = p x D = 100D - 0.25D2
Revenue is maximized when dR/dD = 0
100 - 0.5D = 0
0.5D = 100
D = 200
(Q3) Option (C)
Variable cost (VC) = Revenue x 40% = $300,000 x 40% = $120,000
Profit ($) = Revenue - VC - Fixed cost = 300,000 - 120,000 - 180,000 = 0
(Q4) Option (C)
Equity capital is money and/or property invested in business in expectation of future profit.
(Q5) Option (D)
Total revenue increases when
(i) Demand is elastic and price is decreased, or
(ii) Demand is inelastic and price is increased.
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