It is the year 1675 and you can buy a spice ship in India. If you sail, there is a 60% chance the ship will sink before it can return to England. If the ship does not sink, you can sell the spices in one year. Spice prices are related to market events and have a of 2. The spices cost $1,000 to procure today, the ship costs $10,000. If the ship makes it back, you expect next year to sell the spices for $30,000 (uncertain, depends on market) and you can sell the ship for $10,000 (for certain), too. Should the ship set sail if rF = 5% and E(rM) = 15%? Hint: Here we need to compute the net present value (NPV) of the entire operation to see if it is worth it. For that we need to compute the NPV of ship and spices separately, and later add them up. Remember that NPV = PV(benefits) PV( initial costs).