Midterm2_solution

Midterm2_solution - FINA 3001 Sec020 2nd Midterm 100 points...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
FINA 3001 Sec020 2 nd Midterm 100 points Name: ______________________________ Student ID _______ Multiple Choice (3 points each) Answer all 10 Multiple Choice Questions. 1. __c____ Which of the following is CORRECT about bond price? a. When yield to maturity increases, bond price also increase. b. Bond price increases as time approaches maturity. c. Two bonds with different prices could have same yield to maturity. 2. ___a__ When coupon rate is higher than yield to maturity, a. Bond price is higher than its face value. b. Bond price is lower than its face value c. Bond price is always equal to face value, because coupon rate is unrelated to yield to maturity. 3. __a___ Which of following is CORRECT about bond sensitivity to interest rate risk, given the coupon rate? a. Bonds with longer time to maturity are more sensitive. b. Bonds with shorter time to maturity are more sensitive. c. Bonds with different time to maturities should have same sensitivity. 4. _b____ Which of the following statements is FALSE? a. Given the cash flow of a project, there could possibly be none, one, or multiple IRRs. b. If the cost of capital estimate is greater than the internal rate of return (IRR), the net present value (NPV) will be positive. c. NPV rule and IRR rule do not necessarily give the same conclusion when a financial manager is evaluating a project. 5. __a___ Two bonds have same face value, time-to-maturity (10 years) and yield-to-maturity (5%). The first bond is a zero-coupon bond. The second bond is a coupon bond, with coupon rate 5% paid out annually. If the current price of the coupon bond is $100, what is the current price of the zero-coupon bond? a. $61.39 b. $100 c. $162.89 6. __b__ Two mutually exclusive investment opportunities require an initial investment of $5 million. Investment A then generates $1.5 million per year in perpetuity starting from year 1, while investment B pays $1 million in the first year, with cash flows increasing by 3% per year after that. At what cost of capital would an investor regard both opportunities as being equivalent? a. 6% b. 9% c. 10%.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
FINA 3001 Sec020 2 nd Midterm 100 points 7. __b___ If project B require an initial investment of $1 million, and generate cash flow $0.2 million in perpetuity starting from year 1. Assume the cost of capital is 10%, what is the profitability index of the project? a.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 7

Midterm2_solution - FINA 3001 Sec020 2nd Midterm 100 points...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online