Draw a line of equal present values ie the ldquomarket, Ask an Expert

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Draw a line of equal present values (i.e. the “market opportunity line”) for the cash flow profile of $80 now and $150 next period, with market interest rate 10%. Now assume that the assumption of perfect capital markets is dropped in the following way. Every dollar you save you realize the market interest rate of 10%, while for every dollar you borrow you are charged an additional 1%. How does the market opportunity line change? How might this effect your utility?

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Financial Management, Finance

Category:- Financial Management
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