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1. You have an opportunity to buy a financial asset that will give you the following CFs: 300 USD at the end of year 1,
1. You have an opportunity to buy a financial asset that will give you the following CFs: 300 USD at the end of year 1, 250 USD at the end of year 2,500 USD at the end of year 3,000 USD at the end of year 4, and 750 USD at the end of year 5. You agree with your friend on considering the interest rate at your bank that is 7 percent. However, she will have to pay you back on a semi- annual basis. 4 What is your stated interest rate? b- What is your effective interest rate? C- How much should you invest on this project? d- You are actually comparing this opportunity with another investment requiring you to pay 2,500 USD. Which one would you pick up and why? 2- How much would you invest in a stock market with perpetual dividends of 200 USD per year at an interest rate of 8.5 percent? 3. What is the future value of an investment paying you CFs of 400 USD per year forever starting year 3? Interest rate is 5 percent 4. What is the present value of an investment paying you back 400 USD per year forever starting year 3? Interest rate is 10 percent 5. What is the present value of an investment paying you back 400 USD per year forever with a perpetual growth rate of 2 percent? Interest rate is 7 percent
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