1. Your project will give you a rate of return of 100% over 15 years. Is this a lot or a little? How does this 15-year rate of capital accumulation compare to a rate of 1% over 3 months?
2. You have $100 invest for 1 year at a rate of 10%. Bread sells for $2 today and that means you can buy 50 loaves today. Bread is expected to have a 4% inflation next year. What is your real rate of return? How many loaves of bread can you buy next year?
3. What is the expected mean and standard deviation if stock returns followed this historical distribution: +10% -5% +20% +15%. Show your work.
4. If I offer you a bet of +$1 if heads and -$1 if tails, you pick a coin and someone else in class throws it, would you be willing to take this bet? If not, how much would I have to pay you?