Q 1). Your Company is considering two projects, X and Y, whose costs and cash flows are shown below:

Year X Y

0 ($1,000) ($1,000)

1 100 1,000

2 300 100

3 400 50

4 700 50

The projects are equally risky, and their cost of capital is 12 percent

Required:

a)Calculate the Payback Period, Discounted Payback Period, Net Present Value, Profitability Index and Internal Rate of Return for each project.

b)Which project or projects should be accepted if they are independent?

c)Which project should be accepted if they are mutually exclusive?

Q 2). Answer the following questions.

A)Rs. 5,000 is invested at 16% interest, compounded quarterly. How much will the investment amount to in 3 years?

B)How many years will it take an investment of Rs. 3,000 to amount to Rs. 5,000 if money is invested at 12% compounded monthly?

C) The future value of an investment is Rs. 10,000. If money was originally invested at 10% compounded semi-annually for 5 years, what was the amount of the original investment?

D) How many years will it take an investment to double if money is invested at 12% compounded monthly?

E) A loan of Rs. 50,000 is being paid off in equal quarterly payments for 3 years. If the interest rate is 12% compounded quarterly, find the amount of each quarterly payment.

Q 3). Answer the following questions.

a.What is the value of a 10-year, $1,000 par value bond with a 10% annual coupon if its required rate of return is 10%?

b. (1) What would be the value of the bond described in part 'a' if, just after it had been issued, the expected inflation rate rose by 3 percentage points, causing investors to require a 13% return? Would we now have a discount or a premium bond?

b. (2) What would happen to the bond's value if inflation fell and K_d declined to 7%? Would we now have a premium or a discount bond?

b. (3) What would happen to the value of the 10-year bond over time if the required rate of return remained at 13%?

b. (4) What would happen to the value of the 10-year bond over time if the required rate of return remained at 7%?

b. (5) What does the fact those bonds sells at a discount or at a premium tells you about the relationship between K_d and the bond's coupon rate, Explain.