1. Assume that you have the following information on project A: (i) it will yield cash flows of $900 per year forever; (ii) the IRR is 16%; (iii) the required rate of return (i.e., the cost of capital) for this project is 11.35%.What is the NPV of this project? a. $8,458.15 b. $2,304.52 c. $2,242.88 d. $2,677.23 e. None of the numbers listed above are within $10 of the correct answer.

2. Compute the price of a $10,000 par value bond with a coupon rate of 7.5% (semi-annual payments) and 25 years remaining to maturity. Assume that the current yield to maturity on the bond is 8.60%.

3. Compute the yield to maturity of a $1,500 par value bond with a coupon rate of 7.5% (quarterly payments that is, four times per year) that matures in 25 years. The bond is currently selling for $1,265.00.

4. If the cost of capital for the project shown below is 2.5 percentage points less than the projects IRR (for example, if the projects IRR is 12%, the cost of capital is 9.5%), what is the NPV of the project? Year Cash Flow 0 ($210,000) 1 $40,000 2 $50,000 3 $60,000 4 $60,000 5 $70,000 6 $70,000

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