2. Theres a piece of land (0.44 acres) on sale just off Kennedy Blvd, and you are thinking about buying the land, developing it into an office building and eventually selling it. The seller of the land asked for $600,000. The general contractor says that he can develop it for you and build the office in just one year. You plan to do a month-by-month capital budgeting and see if you should proceed with this investment. If you buy the land today, your cost is the price of the land plus 2% fee for titling, real estate broker, etc. Starting in month 1, your general contractor will take care of the rest, including site development and construction. He asks for $40,000 per month for everything. After 12 months, the building will be done and you will try to sell it for $2 million. Your income tax rate is 33%. You also agree to pay 5% to your real estate agent when its sold. The appropriate discount rate for this project is 8% annually. Now you have all the numbers in front of you, you want to (1) Decide whether you should take this investment or not. (2) Create a NPV profile (3) Do a sensitivity analysis and scenario analysis to get a better picture of the risk you are facing. You are free to choose your own variables and create your own scenarios. (4) You might not be able to afford the cost of construction towards the end, you need to get a $100,000 loan from the bank. After talking to Fifth Third Bank, they agreed to offer you a 10-year loan of $100,000 with fixed monthly payments and floating interest rates. Your interest rates will be 3.5% for the first 2 years, 3.2% for the next 3 years, 3% for the last 2 years and 2.8% for the last 3 years. You want to create a loan amortization table to figure out what your payments look like. 3. You graduated from USF and got a job at MetLife pension department. Your supervisor needs your help with some of its liabilities and risk control. The pension fund has a series of liabilities to be paid every 6 months to the pension plan beneficiaries: $2,000,000, $2,200,000, $2,500,000, $3,200,000, $3,700,000, $4,300,000, $4,700,000, and $5,100,000. Your company wishes to construct a portfolio of assets to cover this series of liabilities, such that it is immunized against interest rate risk right now. The company is considering investing in four bonds: (1) a 1-year Treasury Bill with a face value of $1,000 and no coupon, (2) a 2-year Treasury note with a face value of $1,000 and an annual coupon rate of 1.5%, (3) a 3-year Treasury note with a face value of $1,000 and an annual coupon rate of 1.90%, and (4) a 4-year Treasury note with a face value of $1,000 and an annual coupon rate of 2.30%. All Treasury notes make 2 (semi-annual) coupon payments per year. The current APR yield on all bonds is 1.45%. Your boss wants you to find out how many of each of these four Treasury bonds the fund should buy in order to fully fund the liability and be immunized against interest rate risk right now?4. After you sold the land, you plan to invest in stock market with the money you got. First, you picked a stock you are very interested in. You would like to simulate future daily prices of this stock for the next calendar year. In order to simulate prices, you need expected return and annualized

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