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Please show all your calculations clearly. 1. Assume that the best investment alternative you have earns you a return of 10% per year. Suppose you
Please show all your calculations clearly. 1. Assume that the best investment alternative you have earns you a return of 10% per year. Suppose you invest $20000 now, what will be the value of your investment after a. One year? b. Two years? C. Three years? d. Ten years? 2. Your grandpa wants to present you with a small apartment on your 30th birthday. The apartment is expected to cost $500,000 then. He wants to invest in a 10 year CD (certificate of deposit) on your 20th birthday so that it grows to be $500,000 on your 30th birthday. What is amount should he deposit, if the CD pays an interest rate of 8% per annum, and the tax rate on interest income is 25%? 3. You own a house and you are considering installing a solar powered water heater on your roof top. The contractor gives you the following estimates. The costs of the solar water heater including all installation and piping is $4000. However, your get a tax credit of $1500 the year after install the solar water heater; that is you get to reduce your total tax payable by $1500 that year. The solar water heater has a life of five years. Installing the water heater will reduce your annual natural gas consumption by 120 Mcf. The price of natural gas is $8/Mcf and is expected to remain at that level for next 5 years. If the best investment alternative available to you earns a return of 10% per year, should you invest in the solar water heater? Justify your
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