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1. (YTM) has decreased from 9% to 7%. Which of the following statements is true about the current market price of the bond?
a The bond is selling at a discount
b The bond is selling at par
c The bond is selling at a premium
d The bond is selling at book value
e Insufficient information
2. A company is trying to decide between two independent projects. Each project has a cost of capital of 12%. Project A has an IRR of 11.4%. Project B has an IRR of 11.1%. Which project should the company choose if the goal of the firm is to maximize shareholder wealth?
Project
Project B
c) Both projects should be chosen
d) Neither project should be chosen
e) This question cannot be answered unless we know the NPV of each project.
An asset has had an arithmetic return of 10.8 percent and a geometric return of 8.8 percent over the last 86 years. What return would you estimate for this asset over the next 7 years? 21 years? 28 years?
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what will happen to the value of outstanding bonds?
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Calculate the difference in NPVs between the Make and Buy options. Express all costs as positive values in your calculations.
Verify the theoretical price of a 4-year 6% coupon paying Treasury security is $94.2906
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