Problem 1.) You are able to purchase a mortgage note from a bank for $429,000 that gives you the right to receive $75,500 in each of the next 7 years. What is the yield on this investment?
a. 4.18%
b. 9.79%
c. 5.50%
d. 9.09%
Problem 2.) Mr. Able owns a parcel of land that a local farmer has offered to rent for the next 20 years. The farmer has offered to pay $255,000 today or an annuity of $16,000 at the end of each of the next 20 years. Using a required rate of return of 3%, what option should Mr. Able choose?
a. Lump Sum up front
b. Lump Sum of $16,000
c. Neither one makes economic sense
d. Annuity of $16,000