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1 . Rather than invest in the savings account or mutual fund, your sister gave you a third alternative: the opportunity to invest in her

1. Rather than invest in the savings account or mutual fund, your sister gave you a third alternative: the opportunity to invest in her new business. If you loan her $12,000 today, she will pay you $1,400 at the end of each of the next 10 years (total payments = $14,000). What is the value of her investment to you today assuming you want to earn at least 8% compounded annually you could earn by investing in the fixed income investment fund?
2. You want to help your sister out and are willing to invest in her business, but you also realize it is more risky than a high grade diversified fixed income investment fund and you want to earn a premium for taking on risk. You believe your return from here should be 10%, which is a 2% risk premium above the expected you expect to earn in the diversified fixed income mutual fund. What is the minimum annual amount you should agree to?

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