A trusted friend of yours needs money and comes to you with a deal. In this deal, your friend asks you to pay $2,000 at the end of year 1 , increasing by $500 every year until year 20 . Then, for the next 20 years, your friend will pay you back twice the amount you paid for each of your annual payments, starting at next year right after you finish your last payment. (So, you receive $4,000 at the end of year 21 and $5,000 at the end of next year and so on.) Your friend claims that this is a very generous deal because you are getting back twice the amount you lent. a) Draw the cash-flow diagram. [5 points] b) What is the interest rate that makes you just indifferent between accepting this deal or rejecting it? [ 10 points] c) Assume that your TVOM is 5%, and you decided to lend the amount asked by your friend. How many times of your original payment should you ask for (Currently your friend is giving you back 2 times the amount you paid) if you want to earn $25,000 profit now? [10 Points] Hint: First calculate the present worth of the given cash flow at time 0 . Your answer should be "I should ask for times the initially borrowed money". A trusted friend of yours needs money and comes to you with a deal. In this deal, your friend asks you to pay $2,000 at the end of year 1 , increasing by $500 every year until year 20 . Then, for the next 20 years, your friend will pay you back twice the amount you paid for each of your annual payments, starting at next year right after you finish your last payment. (So, you receive $4,000 at the end of year 21 and $5,000 at the end of next year and so on.) Your friend claims that this is a very generous deal because you are getting back twice the amount you lent. a) Draw the cash-flow diagram. [5 points] b) What is the interest rate that makes you just indifferent between accepting this deal or rejecting it? [ 10 points] c) Assume that your TVOM is 5%, and you decided to lend the amount asked by your friend. How many times of your original payment should you ask for (Currently your friend is giving you back 2 times the amount you paid) if you want to earn $25,000 profit now? [10 Points] Hint: First calculate the present worth of the given cash flow at time 0 . Your answer should be "I should ask for times the initially borrowed money