1)

Principle amount (p) = $100

Rate of interest (r) = 5% or 0.05

Number of years (n) = 190 years

Balance amount after 190 years = P*(1 + r)ⁿ

= $100*(1+ 0.05)¹⁹⁰

= $100*(1.05)¹⁹⁰

= $1,061,614.46

2)

When a new project is proposed for capital budgeting it is associated with cash flows which are called Incremental Cash flow. Hence incremental cash flow is the excess operating cash flow that an organization receives from a new project proposal. Positive incremental cash flow means the company's operating cash flow will improve whereas decline in operating cash flow for vice-versa. Hence the positive incremental cash flow is a good initial sign for a project.

So for evaluating a project we calculate the net present value by finding the present value of all the estimated incremental cash flows and then subtracting from the present value of all the cash outflows. If the NPV is positive then the project is accepted, if negative then the project is rejected, and if zero then it depends on the management to accept or reject as it becomes indifferent.

So the incremental cash flow is important for the acceptance or rejection of a project.

Three Attribute of Incremental Cash Flows:

Initial Outlay - The initial cost of the project or the money required for the setup

Cash Flows from the project - The intermediate cash flows generated by the operation

Terminal Value - The salvage value or the inflows generated by the disposal of the equipment used in the project

In capital budgeting the Initial Outlay helps in the estimation of operating and implementation cost. The projected cash flows helps in calculation of NPV which is used for decesion making.

3)

Profit / (Loss) from a call option = max (S - K, 0) - C

Profit / (Loss) from a put option = max (K - S, 0) - P

The call and put premiums have not been given.

Hence, we will ignore C & p in the equations above.

S = 104; K = 100

Hence, the profit per share of stock to an investor who bought the October maturity IBM call option = max (S - K, 0) = max (104 - 100, 0) = $ 4

and, the profit per share of stock to an investor who bought the October maturity IBM put option = max (K - S, 0) = max (100 - 104, 0) = $ 0

4)

Johnson had been tricked to believe that $ 15000000 , to be the fair value of the property,when he bought it along with the 5 & 3/4% mortgage , worth 12000000.He bought the property for $15000000 , along with the mortgage worth $ 12000000 --so he paid $ 3000000 , in addition to taking the mortgage liability, in his name.

But, it now seems, the property's worth $ 12000000 , after some time , down in the time-line.

If real estate taxes were high, where is the possibility of property value, coming down , after he purchased , for a higher value.

So. Johnson feels , he might have been cheated , by the seller , to the extent of atleast $ 3000000, by quoting above the 100% mortgage-backed property.