1. What are the perfect market assumptions?
2. "If the world is risk neutral, then the promised and expected rates of return may be different but the expected rates of return on all loans should be equal." Evaluate.
3. Your borrowing rate is 15% per year. Your lending rate is 10% per year. The project costs $5,000 and has a rate of return of 12%.
(a) Should you take the project if you have $2,000 to invest?
(b) If you have $3,000 to invest?
(c) If you have $4,000 to invest?