Diane Smith is interested in two mutually exclusive investments. Both investments have a time horizon of 8 years. The first investment opportunity requires an initial investment of $10,000, to receive equal and consecutive year-end payments of $2,500. The second investment opportunity requires an initial investment of $8,500, to receive equal and consecutive year-end payments of $2,000. Diane requires a 9.5% return on the first investment, and an 8% return on the second investment opportunity.

a. Calculate the net present value of the first investment.

b. Calculate the net present value of the second investment.

c. Being mutually exclusive, which investment should Diane choose? Explain.

d. Which investment was relatively more risky? Explain.