Question: PROBLEM 4 (25 pts): You are considering leasing space at a local mall so you can open a coffee shop. The initial outlay (CF0) is

PROBLEM 4 (25 pts): You are considering leasing space at a local mall so you can open a coffee shop. The initial outlay (CF0) is $50,000. The shop is projected to generate the following cash flows: CF1=$10,000; CF2=$15,000; CF3=$15,000; CF4=$20,000. If the cost of capital is r=2%, would you undertake this project? What if the cost of capital were 10%? Justify your decision by referring to the projects net present value. At what value of the cost of capital would you just break even?

PROBLEM 4 (20 pts): Please, compute duration, modified duration, convexity, and modified convexity of an 8% corporate bond that matures in exactly two semesters (12 months) and trades to yield 14%.

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