Question 1:
Joe just inherited the family business, and having no desire to run the family business, he has decided to sell it to an immediate payment of $100,000. Joe will also receive payment of $50,000 in one year, $50,000 two years, and $75,000 in three years. The current market rate of interest for Joe is 60%
In terms of present value, how much will Joe receive for selling the family business?
Questions 2:
What is the NPV of an investment that cost $ 2500 and pays $1000 certain at the end of one, three and five years?
Suppose the term structure of interest rates in shown below:
Term 1 year 2 years 3 years 5 years 10 years 20 years
Rate (EAR%) 5.00% 4.80% 4.6% 4.5% 4.25% 4.15%