Which of the following is a feature of models? A) Models are ...

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Which of the following is a feature of models?
 
  A) Models are the same as hypotheses.
  B) Models help making predictions for the future.
  C) Models are more complicated than real life phenomena.
  D) Models are as complex as the phenomenon being studied.

Question 2

Sarah is considering lending an amount of 45,000 to her friend who promises to return 60,000 after the end of ten years.
 
  What is the net present value of Sarah's investment? Is it worthwhile to undertake this investment? Assume that the market rate of interest is 6.

[macagnavarro]

Answer to Question 1

B

Answer to Question 2

The cost of this investment to the investor is 45,000 and the benefit is 60,000.
The present value of the amount received after ten years is given by 60,000/(1.06 )10 = 33,504 approximately.
Hence the net present value of the project is (33,504 - 45,000 ) = -11,496.
Because the net present value is negative, it is not worthwhile undertaking this investment.