Question 1:

Assume that Bond A and Bond B are identical in every way except for the coupon rate (i.e., both bonds have the same par value, maturity, and yield to maturity or required rate of return). Bond A has a 12% coupon rate and Bond B is a zero coupon bond. Both bonds have a yield to maturity of 8% per year. If interest rates increase so that the yield on both issues increases to 10%, what would happen to the price of the bonds?

	The price of the zero coupon bond would increase, but the price of the 12% coupon bond would decrease.
	The price of the zero coupon bond would decrease, but the price of the 12% coupon bond would increase.
	Both issues would increase in price.
	Both issues would decrease in price.
	None of the above are necessarily true.

Question 2:

Which of the following capital budgeting evaluation techniques will always produce the correct project choice, for both independent and mutually exclusive projects?

	NPV
	IRR
	Payback Period
	Profitability Index
	None of the above will always indicate the best project choice.

Question 3

You are offered an investment with returns of $ 2,083 in year 1, $ 4,392 in year 2, and $ 5,556 in year 3. The investment will cost you $ 6,636 today. If the appropriate Cost of Capital is 7.0 %, what is the Net present Value of the investment?