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25. Assume that interest rates on 20-year Treasury and corporate bonds are as follows: T-bond-7.72% AAA-872% A-9.64% BBB-10.18% The differences in these rates were probably
25. Assume that interest rates on 20-year Treasury and corporate bonds are as follows: T-bond-7.72% AAA-872% A-9.64% BBB-10.18% The differences in these rates were probably caused primarily by: a. Tax effects. b. Default and liquidity risk differences. c. Maturity risk differences. d. Inflation differences. e. Real risk-free rate differences. 26, AJA Company earns 9% per year on an investment that will return S600.000. 7 years from now. What is the amount AJA should invest now if the interest is compounding twice a year? a. $323,983.70 b. $328,220.70 c. $331,421.70 d. $293,983.70 e. $335,983.70 27. Carrie owns a garage and is contemplating purchasing a tire retreading machine for $14,280. After estimating costs and revenues, Carrie projects a net cash flow from the retreading machine of $2.900 annually for 8 years (assume that the cash flow is received at the end of each year). Carrie hopes to carn a return of 1 1% on such investments, which of the following is CORRECT? A) Carrie should buy the machine because the machine is currently under-valued by $643.76 B) Carrie should buy the machine because the machine is currently over-valued by $643.76 C) Carrie should NOT buy the machine because the machine is currently under-valued by $643.76 D) Carrie should NOT buy the machine because the machine is currently over-valued by $643.76 28. Assume that JJ Inc. has a contractual debt outstanding with two options for settlement: (1) pay $3,500,000 today or (2) make annual payments of $400,000 for 15 years, with each payment due at the end of the year. Assuming an effective rate of 8% compounding annually, which of the following is CORRECT? A) Option (2)'s cash flow looks like an annuity due
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