Q1 (a) You have $1000 and are given the choice of two investments. The fir

Q1

(a) You have $1000 and are given the choice of two investments. The first

investment returns $1500 to you 3 in three years time. The second investment

returns $3000 in ten years. Assuming a discount rate of 5% p.a. which

investment do you choose?

(b) You have the choice of two income streams. The first involves receiving $2000

immediately. The second involves receiving $1000 in one year and $1500 in two

years. Assuming a discount rate of 8% p.a. which income stream do you choose?

(c) You have the choice of two income streams. The first involves receiving $3000 in

three years and the second involves receiving $3500 in four years. At what

discount rate are you indifferent between these two income streams? (Hint: find

the discount rate that makes the present value of these two income streams

equal.)