Posted: June 14th, 2022
1) An investment costing $40,000 promises an after tax cash flow of $15,000 per year for 5 years.
a. Find the investment’s accounting rate of return and its payback period.
b. Find the investment’s net present value at a 15 percent discount rate.
c. Find the investment’s profitability index at a 15 percent discount rate.
d. Find the investment’s internal rate of return.
e. Assuming the required rate of return on the investment is 15 percent, which of the above figures of merit indicate the investment is attractive? Which indicate it is unattractive?
2) A $1,000 par value, 12 percent coupon bond matures in 20 years. If the price of the bond is $1,057.70, what is the yield to maturity on the bond? Assume interest is paid annually. How would it change if it was a semiannual bond?
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