1. Your client is evaluating between the following two retirement options:

Option 1:Pays a lump sum of $2.5 million today.

Option 2:A 25-year annuity at $180,000 per year starting today.

If your client's required rate of return is 6 percent per year, which option musthe choose based on a higher present value?

A) Option 1 as it has a greater present value.

B) Option 2 as it has a greater present value.

C) Either of the two options as they have an equal present value. Calculate present value.

2. An investor plans to buy a property worth $200,000 for which he has agreedto 20 percent today as down payment. The remainder will be in the form ofmonthly payments over the next 15 years at 9 percent per year compoundedmonthly. Which of the following is most likely to be the monthly payment?

A) $1,137.

B) $1,440.

C) $1,623.

3. Billy Bowden intends to invest $1.5 million in a project today. The project'sexpected cash flows are $200,000 per year in perpetuity. The cost of capitalis 8 percent. Should Bowden invest in the project based on the IRR rule?

A) No, the project is not worth the investment.

B) Yes, the project is worth the investment.

C) Additional information is required to make the decision.

7. AB & Co. has issued two callable bonds with a maturity of 2 and 5 yearsrespectively. The probability that Bond A will be called is 60% and theprobability that Bond B will be called is 50%. The bonds A and B are independent. The probability that at leastone of the bonds will be called is closest to:

A) 0.8.

B) 0.3.

C) 0.83.