Exhibit 1 Suppose that an investor bought a bond last year for $980. The bond pays a 9% annual coupon and has a face value of $1,000. Today, the same bond is selling for S960. Refer to Exhibit 6-1. If the investor sells the bond this morning, what is the total dollar return of the investment? a. $40 b. $30 c. $50 d. $70 0. What is the risk premium? a. It is the risk associated with investing in Treasury bonds. b. It is the difference in annual returns between common stocks and Treasury bills. c. It is the annual return associated with investing in Treasury bonds. d. It is the variance in stock market returns over the last fifty years. 1 The capital budgeting process involves a. analyzing and prioritizing the investments utilizing various decision criteria b. implementing and monitoring the selected investment projects c. estimating a fair rate of return on each investment given its risk d. all of the above The preferred technique for evaluating most capital investments is a. 2. payback period b. discount payback period c. internal rate of return d. net present value Gamma Electronics Gamma Electronics is considering the purchase of testing equipment that will cost $500,000 to replace old equipment. Assume the new machine will generate after-tax savings of $250,000 per year over the next four years. Refer to Gamma Electronics. What's the payback period for the investment? a. 1.8 years b. 2.0 years c. 2.5 years d. 2.8 years 3