An insurance company is considering two available investment options: the first is an investment in a 4-year 12% government bond paying half-yearly interest, redeemable at par of $1,000,000, and priced at $950,000; the second is the purchase of a 4-year lease on a coal mine priced at $1 million. The mine is expected to have year-end returns of $400,000 for year 1, $600,000 for year 2, $500,000 for year 3, and -$200,000 for year 4 (negative payment represents cost of land restoration). Compare the net present values of the projects and specify which should be undertaken. (hint: find the yield rate for the bond to use in determining the NPV for the mine).

Select one:

a. Bond: $50,000; Mine: $179,555; choose mine

b. Bond: $50,000; Mine: $29,555; choose bond

c. Bond: $0; Mine: $79,555; choose mine

d. Bond: $1,000,000; Mine: $1,029,555; choose mine