g Suppose a worker with an annual discount rate of 8 percent currently resides in Chicago and is deciding whether to remain there or to move to Phoenix. There are three work periods left in the life cycle. If the worker remains in Chicago, he will earn $40,000 in each of the three periods. If the worker moves to Phoenix, he will earn $43,500 in each of the three periods. What is the highest cost of migration that a worker is willing to incur and still make the move

 $9,741.43‬

Explanation:

The highest cost of migration that the worker is willing to incur is the one that will equate the present value of the salary in Phoenix to the salary in Chicago.

Chicago = 40,000 + 40,000/(1 + 8%) + 40,000/ (1 + 8%)^2

= $111,330.59

Phoenix = 43,500 + 43,500/(1 + 8%) + 43,500/ (1 + 8%)^2

= $121,072.02

Hoghest cost of migration = 121,072.02 - 111,330.59

= $9,741.43‬

If the Cost of migration exceeds $9,741.43‬, the worker should stay in Chicago.

5%

Explanation:

Formula for finding percentage return on this bond is;

Percentage return =[ (New price + income- Old price)/Old price ] *100

New price =  1,200

Income = coupon payment = 5% * par value = 5% *1000 = 50

Old Price = 1,000

Percentage return = [ (1,200 + 50 - 1,000)/ 1,000 ] *100

= 0.25 *100

= 25%

Return in one year is therefore 5%