1. A $50000 bond bearing interest at 6.5% bond payable semi-annually matures in 10 years. If it is bought to yield 5.7% compounded semi-annually, what is the purchase price of the bond?
2. An expenditure may be met by outlays of $1700 now and $2210 at the end of every six months for 6 years or by making monthly payments of $500 in advance for seven years. Interest is 11% compounded annually.
3. A $2,000, 10-year, 8% coupon bond was issued on August 15, 2020. It was sold on November 3, 2023 to yield the purchaser 7% compounded semi-annually until maturity. At what price did the bond sell?
4. A business requires a maximum payback period of 5 years. The expected profits from a $75,000 investment are $9,000 in the first year, $15,000 for each of years 2 6. Will the business proceed with its investment?
5. A mine would require an investment of $5 million at the beginning of the first year and a further investment of $5 million at the end of the first year. Mining operations are expected to yield annual year-end profits of $1 million starting in Year 2. The ore body will sustain 10 years of mining operations. At the end of the last year of operations, the mining company would also have to spend $1 million on environmental restoration. Would the project provide the mining company with a rate of return exceeding its 10% cost of capital?
6. A business is evaluating two mutually exclusive projects. Project A requires an immediate investment of $3000, plus another $4000 in three years. It would produce a profit of $3000 in the second year, $9,000 in the fourth year, and $6,000 in the seventh year. Project B requires an immediate investment of $6000, another $7000 in two years, and a further $5000 in four years. It would produce an annual profit of $5400 for seven years. Neither project would have any residual value after seven years. Which project should be selected if the required rate of return is 7%? What is the economic advantage, in current dollars, of the preferred project?