Question 1
The formula to calculate the present value of a future payment of $X received
t years from now when the annual percentage interest rate is
i is
◦
PV = $
X/
i.◦
PV = $X/(1 +
i)
t.◦
PV = $X(1 +
i)
t.◦
PV = $X/(1 +
i)
.◦
PV = $X(1 +
i)
.Question 2
The Canadian government introduced the Tax-Free Savings Account (TFSA) in 2009, which allows Canadians to earn tax-free investment returns on a limited amount of savings each year. In theory, and all else remaining equal, what do we expect the effect of such a policy to be on the market for financial capital?
◦ The supply of savings curve shifts right, the equilibrium interest rate falls and investment increases.
◦ The investment demand curve shifts right, the equilibrium interest rate rises and investment rises.
◦ The investment demand curve shifts left, the equilibrium interest rate falls and investment falls.
◦ The supply of saving curve shifts left, the equilibrium interest rate rises and investment decreases.
◦ There will be no effect on the market for financial capital.
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