1. You lend a friend $20,000, which your friend will repay in 5 equal annual end-of-year payments of $ 6000, with the first payment to be received 1 year from now. What rate of return does your loan receive?
2. Which of the following statements regarding risk-averse investors is true?
a) They only care about the rate of return.
b) They accept investments that are fair games.
c) They only accept risky investments that offer risk premiums over the risk-free rate.
d) They are willing to accept lower returns and high risk.
e) They only care about the rate of return, and they accept investments that are fair games.