Reference no: EM133053734

Questions -

Q1. Mackage, a very popular clothing company operating in Canada, is considering investing in a new retail store in another country. It must choose one among five store locations. The amount that must be invested in each store location, the expected cash flow at the end of the first year, the growth rate of the cash flows, and the cost of capital (the appropriate discount rate in each case) are indicated below. It is assumed each investment will operate in perpetuity after the initial investment. Which location should the company choose?

A. Berlin Initial investment: $170 million; Cash flow in year 1: $21 million; Growth Rate: 1.50%; Cost of Capital: 9.0%

B. Paris Initial investment: $200 million; Cash flow in year 1: $24 million; Growth Rate: 1.25%; Cost of Capital: 9.0%

C. London Initial investment: $160 million; Cash flow in year 1: $16 million; Growth Rate: 1.75%; Cost of Capital: 8.0%

D. Rome Initial investment: $120 million; Cash flow in year 1: $12 million; Growth Rate: 2.50%; Cost of Capital: 7.5%

E. Barcelona Initial investment: $100 million; Cash flow in year 1: $10 million; Growth rate: 2.00%; Cost of Capital: 7.0%

Q2. A risk-free, zero-coupon bond with a $10000 face value has 12 years to maturity. The bond currently trades at $7250. What is the yield to maturity of this bond?

A) 3.268%

B) 2.716%

C) 2.542%

D) 2.912%

E) 3.124%

Q3. Consider a zero-coupon bond with $1,000 face value and 20 years to maturity. The price at which this bond will trade if the YTM is 6.5% is approximately:

A) $215

B) $312

C) $284.

D) $306

E) $402

Q4. A $1000 bond with 5 years to maturity has a coupon rate of 4.2% paid semi-annually and a yield to maturity of 6.2% (APR with semi-annual compounding). If interest rates fall and the yield to maturity falls to 5.8%, what will happen to the price of the bond?

A) falls by $15.28

B) falls by $16.86

C) rises by $16.27

D) rises by $10.06

E) The price of the bond will not change.