Question 1.Your gas-guzzling car gets only ten miles to the gallon and has no resale value, but you are sure that it will last five years. You know that you can always buy a used car for $8,000 that gets 20 miles to the gallon. A gallon of gas costs $2.00 and you will drive 6,000 miles a year. Interest rate is 5%.a) If you are interested only in saving money, should you buy a new car now rather than wait until your current car dies?b) Would you make the same decision as in part a) is you faced a 10% interest rate?Assume annual gas payments are made at the end of each year.Question 2.Peter Guber and Joe Lacob bough the Golden State Warriors basketball team for $450 million in 2010. Forbes magazine estimates the team’s net income for 2009 was $11.9 million.a) If the new owners believed that they would continue to earn this annual profit (after adjusting for inflation), f = $11.9 million, forever, was this investment more lucrative than putting the $450 million in a savings account that pays a real interest rate of 2%?b) Would your answer to the part a) change if the real interest rate is 3%?
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