1. The Department of Traffic Security of a city is considering the purchase of a new drone for aerial surveillance of traffic on its most congested streets. A similar purchase 4 years ago cost $1,375,000. At an interest rate of 5% per year, what is the equivalent value today of the previous $1,375,000 expenditure?
2. What is the value of an annuity which lasts for 4 years and pays $60 per month? Assume your opportunity cost of capital is 0.3% per month.
3. Explain why you would expect interest rates in the US to be higher than in the euro area.