1. The Boring Company (Ticker: BORE) is listed on the NYSE. BORE needs to raise capital for a new venture and they have issued $5 billion face value of bonds for this purpose. These bonds mature in 2026 (3 years from now), pay annual coupons of $60/$1,000 face value. The bonds are priced to yield 7.5%. What is the price of the bond today, and, if yields remain unchanged, will the price of this bond in one year (December 2024) be higher or lower than todays price, or equal to todays price? Lastly, compute the price of the bond in one year, assuming that yields dont change.

2. The Loyola Company (Ticker: LUC) is listed on the NYSE. LUC plans to issue bonds to raise capital for investment purposes. These bonds will have $1000 face value and pay coupons of $80 annually for the next 5 years (till 2028), at which point the bonds will mature. Assuming these bonds are priced at $1000 each, what is the yield on these bonds? And, if yields remain unchanged, will the price of this bond in one year (October 2024) be higher or lower than todays price, or equal to todays price? Lastly, compute the price of the bond in one year, assuming that yields dont change.

3. You are the CFO of a company faced with evaluating the following projects:

Project A: Invest $225 million today, to create a growing perpetuity of cash flows, starting with $20 million in one year, and growing at 2% per year, forever.

Project B: Invest $250 million today, to create a perpetuity of cash flows of $25 million per year forever.

Project C: Invest $300 million today, to create a perpetuity of cash flows of $33 million per year forever.

Note: both projects have r = 10%.

As CFO, you know to rely on the NPV rule to guide you to the best project, but your CEO likes to think in terms of rates of return and favors the IRR rule. When choosing between A, B, &C, which project will you favor & why? Will your CEO agree with your decision?