The Chimera of Macroeconomics

  For the purpose of illustration, we herein calculate some rates of return. Particularly in conjunction with financial instruments, the term “ interest rate ” is used in place of “ rate of return .” In either name, the current price and the (expected) rate are inversely related, ceteris paribus .   My house on the hill. Suppose my house in the rental market. I rationally believe that the residential service is valuable at $100 per annum “in real” “in the long run.” On the other hand, I set the value of time as 2% PA. Again, the value of time is as real as the time is. This is as opposed to that the “ time value of money ” in finance is "nominal." Question 1 : What price would I sell the house outright in the asset market at? The answer of rationality is “the PV ” (for present value) of the cash inflows in the undefined run of future. Unfortunately or rather fortunately, PV is not as straightforward to calculate as it appears to: there is the “ risk factor ” particul...

  We often refer to 5W 1H. With us (Who) and the community (Where) given, we usually ask the Why question first, followed by What, When and How.   Question 1 . Why do we make investment? Is that for the future return or in avoidance of “the opportunity cost” now? Anyone in the right mind would choose the former. More specifically, investment is for the return per dollar (1) per period (1), or the rate of return in percentage per annum . The percentage is nothing other than certain numeric per 100 , where the unity (1) is indexed to 100. “The rate of return” in Finance is somehow called “the interest rate” ( i for nominal, r for real) in Economics.   Question 2. What do we invest in? The most probable answer would be: the best- expected return after deduction of all transaction costs (including risk premiums of various types). Question 3 . What is the most urgent thing you would like as alternative to your investment decision? How often, if ever, would it be “...