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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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