1. You are thinking of retiring. Your retirement plan will pay you either $250,000 immediately on retirement or $350,000 five years after the date of your retirement. Which alternative should you choose if the interest rate is: A)0% per year, B) 8% per year, C) 20% per year?
2. You have been offered a unique investment opportunity. If you invest $10,000 today, you will receive $500 on year from now, $1500 two years from now, and $ 10,000 ten years from now. A) What is the NPV of the opportunity if the interest rate is 6% per year? Should you take the opportunity? B) What is the NPV of the opportunity if the interest rate is 2% per year? Should you take it now?
The solution explains two questions - one relation to choice of retirement plans and other the calculation of NPV