a. An oil company has located a large oil deposit some 300 kilometres east of the Shetland islands in the North Sea. The plan is to locate six deep-water rigs over the deposit, but the drilling process will be long and complicated, probably taking five years to complete. In the sixth vear the oil should start to flow, and the deposit is estimated to be good for 18 vears' worth of crude, valued at about $280 million per year. Assuming interest rates will average around 6% over time period, what is the present value of the expected revenues?

b. You've just signed a twelve-year lease on a property. At the beginning of each year, starting immediately, you pay $1200. Ifinterest rates are at 3%, how much in today's dollars will you have paid out by the time you make your final payment?