Question: show all steps do not use excel Exercise 1. Consider the cash-flows a = (100,2500) and b = (2500,10) at times 0 and 1. (a)

show all steps do not use excel Exercise 1. Consider the

show all steps do not use excel

Exercise 1. Consider the cash-flows a = (100,2500) and b = (2500,10) at times 0 and 1. (a) Suppose the interest rate is 1%. Show that NPV (a) > NPV (b). (b) Suppose the interest rate is 10%. Show that NPV (a) be and ci > b. (d) Suppose the interest rate is 10%. Show that the cash flow b can be transformed by borrowing and investing at rate 1% into a cash-flow (co, c) with co ? do and c1 > 21. 19

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