Interest Rate Risk. Bond J has a coupon rate of 4 percent. Bond S has a coupon rate of 14 percent. Both bonds have 10 years to maturity, make semiannual payments, and have a YTM of 8 percent. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? What if rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lower-coupon bonds?

Calculating Payback. What is the payback period for the following set of cash flows?

Year	Cash Flow
0	$5,900
1	2,000
2	2,700
3	1,500
4	900

4.

Calculating AAR. Youre trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $14 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,253,000, $1,935,000, $1,738,000, and $1,310,000 over these four years, what is the projects average accounting return (AAR)?

12.	Problems with IRR. Howell Petroleum, Inc., is trying to evaluate a generation project with the following cash flows:

Year	Cash Flow
0	$31,000,000
1	48,000,000
2	7,000,000

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a.	If the company requires a 10 percent return on its investments, should it accept this project? Why?
b.	Compute the IRR for this project. How many IRRs are there? If you apply the IRR decision rule, should you accept the project or not? Whats going on here?