Answer the following questions.

Explain your answers:

a. You can purchase a series of cash flows of \($10,000\) for 25 years for a payment of

\($100,000\) today. If your discount rate is 8 percent would you make the investment?

b. You decide to purchase a new car. The dealer offers 12 percent interest on a five-year car loan. Monthly payments will \($400\). What is the equivalent cash price today for the new car? (Hint: The monthly interest rate is the annual interest rate divided by 12.)

c. An investor can purchase an investment that pays interest of \($1,000\) per year for 12 years as well as paying the investor \($10,000\) at the end of the 12th year. If the appropriate discount rate for an investment of this type is 6 percent, what is the maximum amount the investor should pay for the investment? (When answering, remember that calculating an annuity only applies to equal payments. In this question, the present value of the additional \($10,000\) received in the tenth year must be determined separately.)

d. A professional athlete recently signed a 13-year contract paying him \($9.5\) million a season. What is the present value of the contract at the time it is signed? Assume the annual salary is paid at the end of each season and the appropriate discount rate is 10 percent.

e. You have the option of receiving \($500,000\) today or \($50,000\) a year for 30 years, beginning one year from now. If your discount rate is 9 percent, which would you choose?