微觀經(jīng)濟學(xué)（平狄克、魯賓費爾德）第六版課后答案-微觀經(jīng)濟學(xué) 英文原版-CH15-PINDYCK

1、Chapter 15Investment, Time and Capital MarketsTopics to be DiscussedStocks Versus FlowsPresent Discounted ValueThe Value of a BondThe Net Present Value Criterion for Capital Investment DecisionsAdjustments for Risk2Topics to be DiscussedInvestment Decisions by ConsumersInvestments in Human CapitalIn

2、tertemporal Production Decisions Depletable ResourcesHow Are Interest Rates Determined?3IntroductionMarkets for factors and output give a reasonably complete pictureCapital markets are differentCapital is durableIt is an input that will contribute to output over a long period of timeMust compare the

3、 future value to current expenditures4Stocks Versus FlowsStockCapital is a stock measurementThe amount of plant and equipment a company owns at a point in timeFlowVariable inputs and outputs are flow measurementsAn amount needed or used per time period5Stocks Versus FlowsProfit is also a flow number

4、Must know what the capital stock will allow the firm to earn a flow of profitWas the investment a sound decision?Must be able to value today the expected profit flow over timeWhat is the flow of profit worth today?6Present Discounted Value (PDV)Determining the value today of a future flow of incomeT

5、he value of a future payment must be discounted for the time period and interest rate that could be earnedInterest rate rate at which one can borrow or lend money7Present Discounted Value (PDV)Future Value (FV)One dollar invested today should yield(1 + R) dollars a year from now(1 + R) is the future

6、 value of the dollar todayWhat is the value today of getting $1 a year from now?What is the present discounted value of the $1?8Present Discounted Value (PDV)9Present Discounted Value (PDV)The interest rate impacts the PDVThe lower the interest rate, the less you money you needed invest to reach you

7、r future goalWe can see how different interest rates will give different future values10PDV of $1 Paid in the FutureR1 YR5 YR10 YR30 YR1%$0.990$0.951$0.905$0.7422%$0.980$0.906$0.820$0.5525%$0.952$0.784$0.614$0.23110%$0.909$0.621$0.386$0.05711Valuing Payment StreamsCan determine a stream of payments

8、over timeChoosing a payment stream depends upon the interest rateGiven two streams, we can compute and add the present values of each years payment12Two Payment StreamsPayment Stream A: $100 $1000Payment Stream B:$20 $100 $100Today1 Year2 Years13Two Payment Streams14PDV of Payment StreamsPDV of Stre

9、am A: $195.24$190.90$186.96$183.33PDV of Stream B:205.94193.54182.57172.78R = .05R = .10R = .15R = .20Notice that which stream is worth more depends on the interest rateAt lower interest rates, B pays out moreAs interest rates increase, A ends up paying out more15The Value of Lost EarningsPDV can be

10、 used to determine the value of lost income from a disability or deathScenarioHarold Jennings died in an auto accident January 1, 1986 at 53 years of ageSalary: $85,000Retirement Age: 6016The Value of Lost EarningsWhat is the PDV of Jennings lost income to his family?Must adjust salary for predicted

11、 increase (g)Assume an 8% average increase in salary for the past 10 years Average rate of growth of airline pilot salary over timeMust adjust for the true probability of death (m) from other causesDerived from mortality tables17The Value of Lost EarningsMust adjust for the true probability of death

12、 (m) from other causesDerived from mortality tablesAssume R = 9% The rate on government bonds18The Value of Lost Earnings19Calculating Lost Wages20The Value of Lost EarningsFinding PDVThe summation of column 4 will give the PDV of lost wages $650,252Jennings family could recover this amount as parti

13、al compensation for his death21The Value of a BondA bond is a contract in which a borrower agrees to pay the bondholder (the lender) a stream of moneyExample: A bond issued by a company may make a “coupon” payment of $100 per year for the next 10 years and a final payment of $1000How much would you

14、pay for this bond?Present value of payment stream22The Value of a BondDetermining the Price of a BondCoupon Payments = $100/yr. for 10 yrs.Principal Payment = $1,000 in 10 yrs. 23Present Value of the Cash Flow from a BondInterest Rate0.00PDV of Cash Flow($ thousands)00.51.01.52.0The high

15、er the interest rate, the lower the value of the bond24The Value of a BondPerpetuity is a bond that pays out a fixed amount of money each year foreverPresent value of a perpetuity is an infinite summationCan express the value of a perpetuity byPDV = $100/RIn general, PDV = payment/R25The Effective Y

16、ield on a BondCorporate and government bonds are often traded on the bond marketThe price of the bond can be determined by looking at the market priceThe value placed on it by buyers and sellersTo compare the bond with other investment options, can determine the interest rate consistent with that va

17、lue26Effective Yield on a BondCalculating the Rate of Return from a BondP is value of perpetuity market priceCan use equations to find value of R given P and the payment27Effective Yield on a BondFrom previous exampleR = $100/$1000 = 0.10 = 10%The interest rate calculated here is the effective yield

18、Rate of return one receives by investing in the bond28Effective Yield on a BondCalculating the Rate of Return from a BondSee graph showing how R depends on P29Effective Yield on a BondInterest Rate0.0000.51.01.52.0PDV of Payments (Value of Bond)($ thousands)The effective yield is the int

19、erestrate that equates the presentvalue of a bonds payment stream with the bonds market price.Notice the Bond Price is inverse to the effective yield30Effective Yield on a BondYields vary on different bondsEx: Corporate bonds yield more than government bondsThe degree of risk a bond holds is reflect

20、ed in the yieldRiskier bonds have higher yieldsGovernment unlikely to defaultSome corporations are more stable than others31The Yields on Corporate BondsIn order to calculate corporate bond yields, the face value of the bond and the amount of the coupon payment must be knownAssume:IBM and Lucent bot

21、h issue bonds with a face value of $100 and make coupon payments every six months32Yields on Corporate BondsClosing prices for IBM on March 5, 20037 136.210120.25-.38Closing prices for Lucent on March 5, 20035 087.512973.50-.38Wall Street Journal, 3/67.5: coupon payments for one year ($7.5)13: matur

22、ity date of bond (2013)6.2: annual coupon/closing price ($7.5/120.25)10: number of bonds traded that day (10)120.25: closing price ($120.25)-.38: change in price from previous day (down 0.38)33The Yields on Corporate BondsThe IBM bond yield:Assume annual payments and 10 years to maturity34The Yields

23、 on Corporate BondsThe Lucent bond matures in 5 years and has a yield of:35The Yields on Corporate BondsIn 2003, Lucent had significant decline in revenue, laid off many workers and had an uncertain futureThe more risky financial situation required a higher yield on the bonds to entice investors to

24、buy36The Net Present Value Criterionfor Capital Investment DecisionsFirms have to decide when and how much capital to invest inComparing the present value (PV) of the cash flows from the investment to the cost of the investment can give firms information needed to make worthwhile decisions37The Net

25、Present Value Criterionfor Capital Investment DecisionsNPV CriterionFirms should invest if the present value of the expected future cash flows from an investment exceeds the cost of the investment38The Net Present Value Criterionfor Capital Investment Decisions 39The Net Present Value Criterionfor C

26、apital Investment DecisionsDetermining the Discount RateThe firm must determine the opportunity cost of its moneyThe correct value of the discount rate should equal the rate that the firm could earn on a similar investmentOne with same riskWe assume no risk for now, so opportunity cost is what the f

27、irm could earn on a government bond40The Net Present Value Criterionfor Capital Investment DecisionsThe Electric Motor Factory (choosing to build a $10 million factory)8,000 motors/ month for 20 yrsCost = $42.50 eachPrice = $52.50/motorProfit = $10/motor or $80,000/monthFactory life is 20 years with

28、 a scrap value of $1 millionShould the company invest?41The Net Present Value Criterionfor Capital Investment DecisionsAssume all information is certain (no risk)R = government bond rateDiscount rates below 7.5, NPV is positiveDiscount rates above 7.5, NPV is negative42Net Present Value of a Factory

29、Interest Rate, R00.00-6Net Present Value($ millions)-4-20246810Firm should not invest for discount rates below 7.5Firm should not invest for discount rates above 7.5R* = 7.543The Net Present Value Criterionfor Capital Investment DecisionsWhen determining whether to invest or not, must di

30、stinguish between real and nominal ratesReal versus Nominal Discount RatesAdjusting for the impact of inflationAssume price, cost, and profits are in real termsInflation = 5%44Real Versus Nominal Discount RatesAssume price, cost, and profits are in real termsTherefore,P = (1.05)(52.50) = 55.13, Year

31、 2 P = (1.05)(55.13) = 57.88C = (1.05)(42.50) = 44.63, Year 2, C =.Profit remains $960,000/year45Real Versus Nominal Discount RatesIf the cash flows are in real terms, then the discount rate must be in real terms as wellOpportunity cost of the investment, so must include inflation here if doing it e

32、lsewhereReal R = nominal R - inflation = 9% - 5% = 4%46Net Present Value of a FactoryInterest Rate, R00-6Net Present Value($ millions)-4-202468100.04*If R = 4%, the NPV ispositive. The companyshould invest inthe new factory.47The Net Present Value Criterionfor Capital Investment Decisions

33、Negative Future Cash FlowsCompanies expect losses in certain situationsTake time to build demandHigh up front costs that lower over timeInvestment should be adjusted for construction time and losses48The Net Present Value Criterionfor Capital Investment DecisionsElectric Motor FactoryConstruction ti

34、me is 1 year$5 million expenditure today$5 million expenditure next yearExpected loss is $1 million the first year and $0.5 million the second yearProfit is $0.96 million/yr. until year 20Scrap value is $1 million49The Net Present Value Criterionfor Capital Investment Decisions50Adjustments for Risk

35、Determining the discount rate for an uncertain environment:This can be done by increasing the discount rate by adding a risk-premium to the risk-free rateAmount of money that a risk-averse individual will pay to avoid taking a risk51Diversifiable vs. Nondiversifiable RiskDiversifiable risk can be el

36、iminated by investing in many projects or by holding the stocks of many companiesNondiversifiable risk cannot be eliminated and should be entered into the risk premium52Diversifiable vs. Nondiversifiable RiskDiversifying spreads risk over many optionsInvest in many types of investments diversify por

37、tfolioFirms invest in many different projectsNo reward for assets that have only diversifiable risk tend to earn return close to risk free return on average53Diversifiable vs. Nondiversifiable RiskSome risk cannot be eliminated or avoidedCompany profits depend on the economy boom or recessionFuture

38、economic growth is uncertain so cannot eliminate all riskInvestors should be rewarded for bearing this riskOpportunity cost of investing is higher must include risk premium54Diversifiable vs. Nondiversifiable RiskThe Capital Asset Pricing Model (CAPM)Model in which the risk premium for a capital inv

39、estment depends on the correlation of the investments return with the return on the entire stock marketIf you invest in a mutual fund, there is no diversifiable risk but there is nondiversifiable risk since stocks tend to move with economyExpected return on stock is higher than risk free investment5

40、5Capital Asset Pricing ModelSuppose you invest in the entire stock market (mutual fund)rm = expected return of the stock marketrf = risk free raterm - rf = risk premium for nondiversifiable risk Additional expected return you get for bearing the nondiversifiable risk of the stock market56Capital Ass

41、et Pricing ModelReturn on some assets is correlated with stock market as a wholeCAPM summary of relationship between expected return and risk premium57Adjustments for RiskThe asset beta, , measures the sensitivity of an assets return to market movements and, therefore, the assets nondiversifiable ri

42、sk1% rise in market resulting in a 2% rise in asset price means the beta is 21% rise in market resulting in a 1% rise in asset price means beta is 1The larger the beta, the greater the expected return on the asset58Adjustments for RiskGiven beta, we can determine the correct discount rate to use in

43、computing an assets net present value:Risk-free rate plus a risk premium to reflect nondiversifiable risk59Determining BetaFor a stock, beta determined statisticallyFor a factory, determining beta is more difficultFirms often use the company cost of capital as nominal discount rateWeighted average o

44、f the expected return on a companys stock and the interest rate that it pays for debtCan depend on level of nondiversifiable risk60Investment Decisions by ConsumersConsumers face similar investment decisions when they purchase a durable goodCompare flow of future benefits with the current purchase c

45、ost61Investment Decisions by ConsumersBenefits and Costs of Buying a CarIf you keep the car for 5 or 6 years, you have benefits that occur in the futureMust compare the future flow of net benefits from owning the car (having transportation minus cost of insurance, maintenance and gas) with the purch

46、ase price62Benefits and Costs of Buying a CarS = dollar value of transportation services in dollars to a consumerE = total operating cost/yrInsurance, Maintenance, and GasPrice of car is $20,000Resale value of car is $4,000 in 6 yearsDecision to buy the car can be framed in net present value terms63

47、Investment Decisions by ConsumersBenefits and Cost64Investment Decisions by ConsumersWhether you should buy the car or not depends on the discount rateIf you have to borrow money, then use interest loan rateWhen comparing to buy or lease, you can use same calculationHigh interest rate, often better

48、to leaseLow interest rate, often better to buy65Choosing an Air ConditionerWhen buying an air conditioner, must typically face a tradeoff between efficiency and costEfficiency how much energy used to coolDo you want to pay more now for lower long run costs or do you want to pay less now for higher l

49、ong run costs?66Choosing an Air ConditionerBuying a new air conditioner involves making a trade-offAir Conditioner BHigh price and more efficientBoth have the same cooling powerAssume an 8 year life67Choosing an Air Conditioner68Choosing an Air ConditionerShould you choose A or B?Depends on the disc

50、ount rateIf you borrow, the discount rate would be high Probably choose a less expensive and inefficient unitIf you have plentiful cash, the discount rate would be lowProbably choose the more expensive unit69Investments in Human CapitalIndividuals make choices on whether to invest in human capitalDo

51、 I finish college?Do I go to graduate school?Human capital is the knowledge, skills, and experience that make an individual more productive and thereby able to earn a higher income over a lifetime70Investments in Human CapitalTypically the investment in human capital pays off in the future in terms

52、of higher pay, better promotions, and/or more job opportunitiesHow does one decide to invest in human capital?Can use the net present value rule from before71Investments in Human CapitalSuppose you are deciding to go to college for 4 years or skip college and go to workAssume purely financial basis

53、(ignore pleasure or pain from college)Calculate net present value of costs and benefits of going to college72Investments in Human CapitalMajor costs for collegeOpportunity cost of lost wages approximately $20,000 per yearCosts for tuition, room and board, and related expenses assume $20,000 per year

54、Total economic costs of attending college are $40,000 per year for 4 years73Investments in Human CapitalBenefits of collegeHigher salary throughout working lifeOn average, college grad earns $20,000 higher than high school gradAssume that persists for 20 yearsCan now calculate net present value of i

55、nvesting in a college education74Investments in Human Capital75Investments in Human CapitalWhat discount rate should be used?We are ignoring inflation, so you should use a real discount rateAbout 5% would reflect opportunity cost of money for many householdsReturn of investing in other assetsThis gi

56、ves an NPV of about $66,000; therefore, investing in college is a good idea76Investments in Human CapitalAlthough NPV is positive, it is not very largeAlmost free entry system to attend collegeFree entry markets tend to lead to zero economic profits77Should You Go to Business School?Getting an MBA o

57、ften means a large increase in salaryCan see the typical change in salary from getting an MBA from top business schoolsFor US as a whole, average salary pre-MBA is about $45,000 and obtaining the MBA increases salary by about $30,00078Should You Go to Business School?79Should You Go to Business Scho

58、ol?80Should You Go to Business School?Assuming the $30,000 per year gain persists for 20 yearsTypical MBA takes 2 years and has expenses of about $45,000Opportunity cost of forgone pre-MBA salary is also $45,000 per yearTotal economic cost of getting MBA is $90,00081Should You Go to Business School?

59、Net present value of the investment isWith real discount rate of 5%, NPV is about $158,00082Should You Go to Business School?Why is payoff from MBA in Table 15.6 so much greater than from 4-year undergrad degree?Entry into many MBA programs, especially those listed in table, is highly selective and

60、difficultMany more people apply than are accepted, so return remains high83Should You Go to Business School?Financial decision is easyAlthough costly, return is very highBut some find it more fun than othersMany do not have undergraduate grades and test scores to go to business schoolYou may find a