1a) You invest $10 million into an oil pipeline that will generate a $2 million cash income over the coming year, and it is expected to grow with an annual growth rate of 2% in the next 20 years. However, the operation cost will be $1 million over the coming year, and is expected to growth at 1% in the next 20 years. Suppose at the end of 20 year, you can sell the oil pipeline with the price of $5 million, what is the NPV of this pipeline project if the discount rate is 10%?

b)Mr. Free plans to make an investment plan for his retirement 20 years later. He wants to maintain a retirement life style with an annual spending of $200000 each year and for 15 years. He starts to deposit a fixed amount money ($C) every year into his bank account from now on, the last deposit happens at the end of the year 20.Assuming the bank interest rate is 10% (annual payment) and his first retirement annual spending happens at the end of year 21, how much is $C so that he can afford to achieve that life style?

c) Mr. Free proposes to invest in two shares, X and Y. He expects a return of 15% from X and 9% from Y. The standard deviation of returns is 9% for X and 6% for Y. The correlation coefficient between the returns is 0.2. Compute the expected return and standard deviation of the portfolio if he invest 80% of money into X and 20% into Y.

How would your answer change if the correlation coefficient changes to 0.5?

Is Mr. Free's portfolio better or worse than one invested entirely in share X, or is it not possible to say?