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You graduate from college and take a job at a consulting firm with a wage of $25 per hour. Your job is extremely flexible: you can choose to work any number of hours from 0 to 2,000 per year.
a. Suppose that there is an income tax of the following form: Income up to $10,000: no tax Income from $10,000 to $30,000: 20% tax rate Income from $30,000 up: 30% tax rate Draw a graph in hours worked/consumption space, showing your opportunity set with and without the tax system. With the tax system in place, are there any points that you are particularly unlikely to choose? Why or why not?
b. Say that you choose to work 1,500 hours per year. What is your marginal tax rate? What is your average tax rate? Do these rates differ? Why or why not?
c. Suppose that the two tax rates are increased to 25% and 50%. What is the likely effect on the labor supply of men? What is the likely effect on the labor supply of married women? Explain how the responses might differ between these groups, both in terms of underlying economic effects and in terms of the empirical evidence on labor supply responses.
The issuance of municipal securities is regulated by:
Factors affecting exchange rates. If the Asian countries experience a decline in economic growth (and experience a decline in inflation and interest rates as a result), how will their currency values be affected?
Mr. Jones has a 2-stock portfolio with a total value of $530,000. $205,000 is invested in Stock A and the remainder is invested in Stock B. If standard deviation of Stock A is 17.10%, Stock B is 8.60%, and correlation between Stock A and Stock B is –..
OMG Inc. has 4 million shares of common stock outstanding, 3 million shares of preferred stock outstanding, and 5,000 bonds. Suppose the common shares sell for $20 per share, the preferred shares sell for $19 per share, and the bonds sell for 109 per..
Lorenzo owns two apartment buildings. He acquired forsythia acres on February 21, 1998, for $300,000. Neither apartment complex qualifies for low income housing. if Lorenzo elects to write off the cost of each building as quickly as possible, what is..
The real risk-free rate of interest is 3%. Inflation is expected to be 2% this year and 5% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3-year Treasury s..
The common stock of Buildwell Conservation & Construction, Inc., has a beta of .80. The Treasury bill rate is 6%, and the market risk premium is estimated at 9%. BCCI’s capital structure is 25% debt, paying a 5% interest rate, and 75% equity. Buildwe..
Your required rate of return is 8%. If you invest $15,000 today in a project, you will receive the following cash flows: What is the NPV of the project? What is the payback period of the project?
While checking the Wall Street Journal bond listings you notice that the price of an AT&T bond is the same as the price of a K-Mart bond. Based on this information you know that
Suppose you bought a bond with an annual coupon rate of 7.6 percent one year ago for $840. The bond sells for $885 today. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year? What was your total nomin..
If the expected return on the market is 8 percent and the risk-free rate is 4 percent, What is the expected return for a stock with a beta equal to 1.80? What is the market risk premium?
He presently has $150,000 in a retirement account that will be re-invested in a stock fund that has historically earned 10% annually (EAR) with no dividends. The plan is to add an additional $1,000 to the fund at the end of each month for 15 years. H..
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