Chapter 3 Problems 4 7 9 124. Suppose the risk-free interest rate is %4.a. Havin

Chapter 3 Problems 4 7 9 124. Suppose the risk-free interest rate is %4.a. Having $200 today is equivalent to having what amount in one year?b. Having $200 in one year is equivalent to having what amount today?c. Which would you prefer $200 today or $200 in one year? Does your answer depend on when you need the money? Why or why not?7. Your firm has identified three potential investment projects. The projects and their cash flows are shown here: Cash Flow Cash FlowProject Today ($) in One Year ($) A -10 20 B 5 5 C 20 -10Suppose all cash flows are certain and the risk-free interest rate is 10%.a. What is the NPV of each project?b. If the firm can choose only one of these projects which should it choose?c. If the firm can choose any two of these projects which should it choose?9.
Suppose Bank One offers a risk-free interest rate of 5.5% on both
savings and loans and Bank Enn offers a risk-free interest rate of 6%
on both savings and loans.a. What arbitrage opportunity is available?b. Which bank would experience a surge in the demand for loans? Which bank would receive a surge in deposits?c. What would you expect to happen to the interest rates the two banks are offering?12.
The promised cash flows of three securities are listed here. If cash
flows are risk-free and the risk-free interest rate is 5% determine
the no-arbitrage price of each security before the first cash flow is
paid. Cash Flow Cash FlowSecurity Today ($) in One Year ($) A 500 500 B 0 1000 C 1000 0