1. Which asset classes generally offer higher average rates of returns? Why? 2. You have $100 in...

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Finance

1. Which asset classes generally offer higher average rates ofreturns? Why?
2. You have $100 in cash. The prevailing interest rate is 20% perannum. You have two investment choices: a) Project costs $100 andwill return $150 next year, b) Ice Cream—and you love ice cream.The problem is you know that you will be dead next year. Whatshould you do?
3. Does project value depend on when you need cash? In our perfectworld, can you make your decision on investment and consumptionchoices separately, or do you need to make both of them at the sametime?
4. Assume that we believe that the expected cash flow is $500 andthe expected rate of return (cost of capital) is 20%. This is a1-year project. Is it worse to commit an error in cash flows or inthe cost of capital? Does your conclusion change if this is a50-year project?

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1. Which asset classes generally offer higher average rates ofreturns? Why?2. You have $100 in cash. The prevailing interest rate is 20% perannum. You have two investment choices: a) Project costs $100 andwill return $150 next year, b) Ice Cream—and you love ice cream.The problem is you know that you will be dead next year. Whatshould you do?3. Does project value depend on when you need cash? In our perfectworld, can you make your decision on investment and consumptionchoices separately, or do you need to make both of them at the sametime?4. Assume that we believe that the expected cash flow is $500 andthe expected rate of return (cost of capital) is 20%. This is a1-year project. Is it worse to commit an error in cash flows or inthe cost of capital? Does your conclusion change if this is a50-year project?