1. An investment under consideration has a payback of six years and a cost of $872,000. Assume the cash flows are conventional.
If the required return is 12 percent, what is the worst-case NPV?
2. Assume a 2% effective 6-month interest rate, and premiums of $93.809 for the 1,000-strike 6-month call and $74.201 for the 1000-strike 6-month put on the S&R index. Suppose that you short the S&R index for $1,000 and sell a 1,000-strike put.
Payoff and Profit of this position?
(Include a profit table)