1.Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $4000 at the end of each of the next three years. The opportunity requires an initial investment of $1000 plus an additional investment at the end of the second year of $5000. What is the NPV of this opportunity if the interest rate is 2% per year? Should Marian take it?
2.Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes one year to manufacture $100. However, once built, the machine will last forever and will require no maintenance. The machine can be built immediately, but it will cost $1000 to build. Your buddy wants to know if he should invest the money to construct it. If the interest rate is 9.5% per year, what should your buddy do?
3.How would your answer to Problem 16 change if the machine takes one year to build?
4.The British government has a consol bond outstanding paying £100 per year forever. Assume the current interest rate is 4% per year.
a. What is the value of the bond immediately after a payment is made?
b. What is the value of the bond immediately before a payment is made?4.What is the present value of $1000 paid at the end of each of the next 100 years if the interest rate is 7% per year?
5.What is the present value of $1000 paid at the end of each of the next 100 years if the interest rate is 7% per year?