A company prices its tornado insurance using the following assumptions:
• In any calendar year, there can be at most one tornado.
• In any calendar year, the probability of a tornado is 0.04.
• The number of tornadoes in any calendar year is independent of the number of tornados in any other calendar year.
Using the company's assumptions, calculate the probability that there are fewer than 4 tornadoes in a 20-year period.

Havana, Inc., has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the future value of these cash flows in Year 7? (Hint: Be careful with the number of periods.) If the picture doesn't load, the cash flows shown in the picture are as follows: 910 in year 1; 1140 in year 2; 1360 in year 3; and 2100 in year 4.

You are presented with an investment opportunity that will give you the following stream of cash flows: nothing for the next 5 years; at the following year, an amount of $3,000 per year until year 10; and then an amount of $8,000 per year until year 25. If your required rate of return (APR) is 12% compounded annually, what is the present value today of these cash flows?

Linkers: There is a freshly issued 10‐year inflation‐linked bond with a

face value of 1,000. Inflation in the coming year is 3%. What is the principal at the beginning

and end of this year and the coupon this year and next year, for A) a zero‐coupon inflation

indexed bond? B) a bond with 5% annual coupon rate that is interest‐indexed, and C) a

bond with a 5% coupon rate that is capital‐indexed?

A new $110,000 machine will be depreciated using a 5-year MACRS schedule. It should generate $45,000 per year in additional revenues, and $20,000 per year in additional cash operating costs per year. If the firm has a tax rate of 39%, calculate the year 4 incremental net operating cash flow.

You are presented with an investment opportunity that will give you the following stream of cash flows: nothing for the next 2 years; at the following year, an amount of $5,000 per year until year 14; and then an amount of $8,000 per year until year 22. If your required rate of return (APR) is 9% compounded annually, what is the present value today of these cash flows?

Treasury spot rates (expressed as semiannually pay yields to maturity) are as follows: 6 months 1%, 1 year 1.5%, 1.5 year 2% 2 year: 2.5% and 2.5 year: 2.25%. A 2.5 year, 3.5% Treasury bond is trading at $1,043. What is the arbitrage trade and how much would profit would you earn from doing the trade?

A company prices its tornado insurance using the following assumptions:

• In any calendar year, there can be at most one tornado.

• In any calendar year, the probability of a tornado is 0.01.

• The number of tornadoes in any calendar year is independent of the number of tornados in any other calendar year.

Using the company's assumptions, calculate the probability that there are fewer than 3 tornadoes in a 16-year period.

27. You are valuing an investment that will pay you $28,000 per year for the first 4 years, $43,000 per year for the next 12 years, $69,000 per year the next 18 years, and $61,000 per year for the following 10 years (all payments are at the end of each year). If the appropriate annual discount rate is 11.00%, what is the value of the investment to you today?