1. Can the nominal interest rate ever be negative? Can the real interest rate ever be negative? Explain.,2. What is a sunk cost? Should it be included in the incremental cash flows for a project? Why or why not?,3. What is an opportunity cost? Should it be included in the incremental cash flows for a project? Why or why not?,4. Briefly describe the four characteristics of IPOs that puzzle financial economists.,5. You are purchasing a new home and need to borrow $325,000 from a mortgage lender. The mortgage lender quotes you a rate of 6.5% APR for a 30-year fixed rate mortgage (with payments made at the end of each month). The mortgage lender also tells you that if you are willing to pay 1 point, they can offer you a lower rate of 6.25% APR for a 30-year fixed rate mortgage. One point is equal to 1% of the loan value. So if you take the lower rate and pay the points you will need to borrow an additional $3,250 to cover the points you are paying the lender. Assuming that you do not intend to prepay your mortgage (pay off your mortgage early), are you better off paying the 1 point and borrowing at 6.25% APR or just taking out the loan at 6.5% without any points? Why?,
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