eco 202 exam 3 review
TRANSCRIPT
Compounding Discounting
(1+r)N(1+r)N 1
Future Value Present ValueMultiply Present Value
by factor to get Future Value
Multiply Future Valueby factor to get Present Value
1. Calculate factor (1+r)N
2. Is the problem FV or PV?
3. If FV then multiply by PV
FV = PV x Factor
4. If PV then divide FV by
PV = FV ÷ Factor
Present Value = 500r = 5% or .05N = 4Future Value = ?
= PV x (1+.05)4
= PV x 1.2155= 500 x 1.2155= 607.75
Future Value = 2000r = 8% or .08N = 5Present Value = ?
= FV ÷ (1+.08)5
= FV ÷ 1.4693= 2000 ÷ 1.4693= 1361.16
QuestionsAlways given r and N
If given PV, then solve for FV
If given FV then solve for PVPV
FV
FV ?=
PV ?=r and N
DiversificationReplace one large risk
with lots of small unrelated risks
SmallRisk
SmallRisk
SmallRisk
SmallRisk
SmallRisk
SmallRisk
LargeRisk
How to Fund an Insurance Pool
Estimate Loss
Estimate Probability
Premium = Loss x Probability
Members = Loss ÷ Premium
Loss = 100
Probability 1 in 20 or .05
Premium = 100 x .05 = 5
Members = 100 ÷ 5 = 20
How to Fund an Insurance Pool
Shariah - Sacred LawRiba - Usury -InterestGharar - UncertaintyHaram - ProhibitiedHalal - PermittedZakat - Religious TaxHiba - Gift
Deposits Current Saving -Wadiah Investment - MudarabahEquity Financing Mudarabah - Risk Musharakah - Share RiskAsset Financing Murabahah - Resell Salem - Crop Loan Ijarah Leasing - ReturnSukuk - Bonds Takaful - Insurance
FutureDifferent views and interpretations
EvolvingNo uniform consensus
Five schools of thoughtShafi’i, Maliki, Hanafi,
Hanbali, and Shi’a
Total Population 30 million
Non-Saudis 10 million
Saudis 20 million
Adult Population Age 15+ 11 million
Not in Labor Force 6 million
In Labor Force 5 million
Labor Force Participation Rate 45%
Employed 4.4 million
Unemployed 600 thousand
Unemployment Rate 12%
Source: General Statistics Department and Information
Saudi Labor Force Around
Employedpaid employees
work in own businessunpaid workers in family business
full-time and part-timejobs but temporary absence
Unemployednot employed
availabletried to find a job in the last four
weekswaiting to be recalled from layoff
Employment Analysis Saudi U.S China
Unemployment Rate 12.2% 7.9% 4.1%
Participation Rate 45.0% 63.3% 74.2%
Natural Rate of Unemployment
The normal rate of unemployment around
which the unemployment rate fluctuates
0
1,000
2,000
3,000
4,000
0 10 20 30 40 50 60
Supply
Demand
Wage
Workers
Equilibrium Wage
30 workers30 jobs
no unemployment
Minimum Wage40 workers
20 jobs20 unemployed
workers
Minimum Wage20 workersget a raise10 workers
lose job10 new
unemployed workers
MinimumWage
Efficiency Wages
Employee Wage Pizzas ProductivityWage per Pizza
Ali 100 5 20.0
Abdullah 200 12 16.7