THE NEXT TWO (2) QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION: The Lanskys have recently invested $700,000 in a new condominium project. Below is a summary of the expected annual cash flows for Phases 1, 2, and 3. (Due to be finished in Years 3, 5, and 7 respectively) Phase End of Year Cash Flows 1 3 2 5 $255,000 $400,000 $475,000 3 7 17. What is the internal rate of return on their investment, expressed as an effective annual rate? (1) 10.34% (2) 9.50% (3) 12.74% (4) 11.78% 18. Due to a major earthquake in the area, Phase 3 was delayed and completion did not occur until the end of Year 8. How does this affect the Lanskys' internal rate of return (IRR) on their investment? (1) Decrease the IRR (2) Increase the IRR (3) No change in IRR (4) Impossible to determine from information given alternatives THE NEXT TWO (2) QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION: Ned Shred, founder of Shred Mountain Bikes, has made his fortune and is looking for a place to invest his wealth. Ned is considering investing in a mortgage by lending $250,000 to his sister Shelley. Ned will charge Shelley interest at 8.5% per annum, compounded semi-annually. The loan will have monthly payments based on a 20-year amortization and a 3-year term. Ned has discovered that he can deposit all of the payments he receives from the loan into an account that bears interest at a rate of 9% per annum, compounded monthly. 19. If Shelley makes all of her monthly payments on time, and Ned deposits all of all the payments into the account described above, what yield will Ned have earned on his investment at the end of the term of the loan? Express Ned's yield as a nominal rate per annum, compounded monthly. (1) 9.00% (2) 8.25% (3) 8.76% (4) 8.44%