2.3-2.4 (Excel): You have been offered a unique investment opportunity. If you invest $1 million at t=0, you will receive $20,000 from t=1 to t=40, plus a balloon payment of $1.5 million at t=40.

2.3 What is the NPV of the investment, assume your expected rate of return in the investment is 5%?

2.4 What is the internal rate of return of the investment?

2.5-2.6 (Excel): You are considering buying a house which costs $500,000. You have only $70,000 in cash. A bank offers you a 30-year mortgage that requires annual payments and an annual interest rate of 5%. Say you will pay $70,000 as a down payment and accept the 30-year mortgage to cover the rest of the price of the house.

2.5 What will your annual payment be?

2.6 Say you can only pay $20,000 a year. You tell the bank that you will pay a balloon payment at the end of the mortgage. What will this balloon payment at least be for the bank to accept it?