You can invest in a risk-free technology that requires an upfront payment of $1 million and will

Question:

You can invest in a risk-free technology that requires an upfront payment of $1 million and will provide a perpetual annual cash flow of $80,000. Suppose all interest rates will be either 10.0% or 5.0% in one year and remain there forever. The risk-neutral probability that interest rates will drop to 5.0% is 90%. The one-year risk-free interest rate is 8.0%, and today's rate on a risk-free perpetual bond is 5.4%.The rate on an equivalent perpetual bond that is repayable at any time (The callable rate) is 9.0%.
a. What is the NPV of investing today?
The NPV is _____$. (Round to the nearest dollar)
b. What is the NPV of waiting and investing tomorrow?
The NPV if the rate goes up is______$. (Round to the nearest dollar)
The NPV if the rate goes down is______$. (Round to the nearest dollar)
The PV is______$ (Round to the nearest dollar)
Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,...