Question
8-5: A stockbroker has proposed two investments in low- rated corporate bonds paying high interest rates and selling at steep discounts (junk bonds). The bonds
8-5: A stockbroker has proposed two investments in low- rated corporate bonds paying high interest rates and selling at steep discounts (junk bonds). The bonds are rated as equally risky and both mature in 15 years.
| Bond | Stated Value | Annual Interest Payment | Current Market Price with Commission |
| Gen Dev | $1000 | $72 | $480 |
| RJR | $1000 | $105 | $630 |
a) What is the IRR of the Gen Dev bond? <2 pts>
Answer:
Reasoning/Work:
b) What is the IRR of the RJR bond? <2 pts>
Answer:
Reasoning:
c) What is the DIRR between the Gen Dev and RJR bonds? <3 pts>
Answer:
Reasoning:
d) Which bond should be selected if the MARR is 20.00% ? <1 pts>
Answer:
Reasoning:
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Finance For Housing An Introduction
Authors: Cathy Davis
1st Edition
1447306481, 978-1447306481
