1. Two years ago, you bought a 10-year bond with semi-annual coupon payments, which currently is selling at $1,050. What is the annual coupon payment if the yield to maturity is 6%

a. $33.98

b. $60

c. None of THESE

d. $64.94

e. $67.96

2. Which of the following statements is true?

a. All of THESE

b. The lower the discount rate the higher the present value of the expected cash flows of a project.

c. The higher the annual depreciation the higher the net present value of a project.

d. The initial investment in net working capital is usually recuperated at the end of the projects useful life.

3. If a non-dividend paying common stock increases by 50% in one year and decreases by 50% in the next year, then the geometric average return is zero.

True

False

4. You need to decide between two mutually exclusive projects. Project A is investing in Machine A with a useful live of 3 years or investing in machine B with a useful life of 5 years. Additional information.

Machine A: Initial investment of $10 million and annual cost of $500,000 on years 1 to 3.

Machine B: Initial investment of $9 million and annual cost of $800,000 on years 1 to 5.

If the discount rate is 11%, which machine should be chosen?

a. Machine A

b. Machine B

c. Choose the machine with the lowest IRR.

d. Choose machine with the lowest total cost.

e. Choose the machine with the lowest present value of annual costs.