Question
Please help me with explanation if possible on line graph. plotting on timeline. 1. A friend offers you an opportunity to participate in a land
Please help me with explanation if possible on line graph. plotting on timeline.
1. A friend offers you an opportunity to participate in a land development project. The investment opportunity is expected to generate nothing for three years. in the 4th years and 5th years most of the property will be sold and your investment is expected to provide cash payments of $9,000 per year. Six years from today, the development is expected to be completed and will pay a $4500 final cash payment. you decided that the appropriate expected rate of return on investment of this risk is 15% per year. should you buy the share of the project for $11000? what is the most you should pay for this opportunity? Assume that the purchase price must be paid today and that the cash inflows will occur at the end of the respective years.
2. Assume that you are planning for for your child's college education. your child will begin college in 18 yrs . you would like to make annual deposits into an account, starting today, so that your child may make withdrawals in each of the years 18 through 21 for tuition. Annual tuition is currently $3000, but it is expected to grow at 5% a year for the next 25 years. if the effective interest rate is 9% annually, then how much must you deposits in the account each year? Assume that tuition is payable at the beginning of each school year.
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