Asset valuation and riskPersonal Finance Problem

Laura Drake wishes to estimate the value of an asset expected to provide cash inflows of $1,500 for each of the next 4 years and

$7,398 in 5 years. Her research indicates that she must earn 3% on low-risk assets, 8% on average-risk assets, and 13% on high-risk assets.

a. Determine what the most Laura should pay for the asset if it is classified as (1) low-risk, (2) average-risk, and (3) high-risk is.

b. Suppose Laura is unable to assess the risk of the asset and wants to be certain she's making a good deal. On the basis of your findings in part a, what is the most she should pay? Why?

c. All else being the same, what effect does increasing risk have on the value of an asset? Explain in light of your findings in part a.

a. (1) The most Laura should pay for the asset if it is classified as low-risk is $____. (Round to the nearest cent.)