Question 7

Price

Coupon

YTM Time to maturity

?

0

2%

1 year

890

5%

?

2 years

945

?

5%

3 years

Assume semi-annual coupon payments. Find missing values in the table above.

Please show details of your solution.

Question 5

a.What effective annual rate results from the quarterly compounding of 10%?

b.Suppose that you have a mortgage on your house. You make monthly payments. Your rate of return per month is 1.5%. What is the APR on your loan? What is your effective annual rate?

Question 1

Consider the following mutually exclusive investments

T=0

1

2

Investment A:

-200

40

210

Investment B:

-200

170

70

a.Find IRRs for both projects

b.Draw a graph, using Excel, in which you will show the NPV of each project as a function of its discount rate (i.e NPV on the vertical axis and r on the horizontal axis). Both NPVs should be on the same graph.

c.Find the cross over rate

d.Please describe as fully as possible which project is the best and under which circumstances.