(Economics) From Home-Renter to Home-Owner!

You’ve done it. You’ve finally decided to buy a house… sometime in the next 5 years. You’ve got your eye on a certain neighborhood. The homes aren’t any “mansion-in-the-sky.” But it doesn’t matter. Because baby, it’s all yours… (Cough! Well actually it’s the bank’s... at least till you pay it off. But who likes that dream?)

But now that you’ve decided to buy in 5 years, you realize you need to start saving. You figure if home prices continue their uptrend, you’re dream house will probably cost about 325,000 USD once you’re ready. The average cash down-payment typically runs about 20% of the purchase price. And for the foreseeable future, it seems reasonable that you can get 7% annual return (compounded monthly) if you invest your savings in a mutual fund.

If you choose to automatically deposit money every month into such a fund, how much do you need to save each month in order to afford the down-payment for this house?

      $867
      $908
      $1012
      $1178

FOUNDATIONAL TOOL / HINT: So this is a jump off a cash-flow concept we’ve explored in the past… but this time, from a different angle. If you haven’t explored this or need a refresher, CLICK HERE to revisit the explanation. But if you just need a simple Hint, then CLICK HERE

(Thermo) Energy In & Out Of A Stirling Engine

You've just gotten your hands on a stirling engine (Dean Kamen thinks these things could power the world). The engine takes an input from a heat source and outputs work.

MM-7_Stirling_Engine.jpg

In this case, a pressure sensor tells us that the heat source compresses the (ideal) gas inside the piston chamber from 200 kPa to 300 kPa. As a result of the process, the internal energy of the gas increases by 10 kJ, and 140 kJ of heat is transferred to the surroundings.

How much work was done by the gas during this part of the process?

(Economics) Today, You're LeBron James...

Just for today, let’s pretend that you are Lebron James. This is it, the day you announce to the world that you’re finally returning home to the Cleveland Cavaliers.  But before you can, you need to accept one of Cleveland’s 2 tempting salary offers;

  • OFFER #1: $21 Million per year, for 2 years (paid at end of each year).
  • OFFER #2: $44 Million as a single “lump-sum,” at the end of 2 years.

You know that you’d always rather get your money quicker. But Offer #1 is less money total… And even though Offer #2 seems like more, you have to wait longer. And there’s always a “time-value” for money…


If it's reasonably-assured you'll make 6% (per year) in the market over the next 2 years... strictly “economically-speaking,” which future offer is worth more today?

      OFFER #1
      OFFER #2
      The Same

[FOUNDATIONAL TOOL: The notion of “Present Value” in “The Power of Compound Interest (Econ Pt 1 of 2)”. ----> Previously, we explored how to calculate the “Future Value” of a sum of money you have today. But now we're switching gears and asking you to do the opposite: Calculate the Present Value of a sum of money you’ll receive in the future instead. If you need a refresher of how Future Value relates to Present Value, click here!]

(Probability) Call His Bluff

It's poker night and the game is Texas Holdem. Now, get your poker face on and crunch those numbers!

You're sitting in the final round of betting with pocket rockets (a pair of Aces) in your hand. On the table there is an 8 of diamonds, 2 of hearts, 3 of spades, 4 of clubs, and the dealer just revealed a 6 of clubs. Two of your opponents just folded, and one is betting as if he had a 5 to complete the straight on the table.


What is the probability that your opponent has a 5 in his hand?
Here's a refresher on Texas Holdem
      1%
      5%
      10%
      20%