Financial Economics

a) A company has identified the following three mutually exclusive projects (7) Cost Cash flow (C) -2 000 000 110 000 forever Year 0 1 2 3 4 5 6 7 8 9 10 Cash flow (A) -2 000 000 350 000 420 000 560 000 890 000 0 0 0 0 0 0 Cash flow B) -2 000 000 200000 200000 200000 200000 200000 200000 200000 200000 200000 200000 If the required rate of return is 5 %, what is the NPV for each of these three projects? ii. Which project will you choose if you apply NPV decision rule? b) Consider a 30-year, fixed-rate mortgage for SEK 5000 000 at a nominal rate of 5 % compounded monthly i. Construct an amortization schedule for the first 6 months. (5p) ii. If the borrower wants to pay off the remaining balance on the mortgage after 15 years, what is the remaining balance on the mortgage? (1.5p) iii. If the borrower wants to pay off the remaining balance on the mortgage after 25 years, what is the remaining balance on the mortgage? (1.5p)