QUIZ 6

# QUIZ 6 - Question 1 2 out of 2 points Consider two mutually...

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Question 1 2 out of 2 points Consider two mutually exclulsive projects. Suppose the rate of return of project 1 is 15% and the rate of return of project 2 is 13%. If both projects have the same initial cost and each project lasts for a period of seven years, from year 0 to year 7, which project should Tom invest his money in? Answer Selected Answer: B. The information given is not sufficient to determine the answer. Correct Answer: B. The information given is not sufficient to determine the answer. Response Feedback: We are not given the MARR and therefore we cannot determine whether the each project would be profitable for Tom. For example if Tom's MARR=16%, then he should invest his money elsewhere. o Question 2 0 out of 2 points Four years ago, an alumnus of a small university donated \$915 to establish a permanent endowment for scholarships, that is, the \$915 amount will be in the fund forever. The first scholarships were awarded 1 year after the money was donated. If the amount awarded each year (i.e., the interest) is \$58.94, the rate of return earned on the fund is. .. (State your answer in decimal form, e.g., if i=2.345%, enter .02345. Accuracy is set at

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the fourth decimal. ) Answer Selected Answer: Correct Answer: Response Feedback: o Question 3 2 out of 2 points Suppose the simple ( i.e. without discounting) sum of the benefits and costs associated with a project is zero. Does it follow that the project's unique rate of return is zero? Answer Selected Answer: Correct Answer: Response Feedback: Consider a project that requires a payment of 1000 dollars today and a payment of 100 dollars due 100 years from today. The project pays 1100 at the end of year 1. The sum of the payments is S=-1000-100+1100 = 0. However, along with the 0 rate of return we get another 99 solutions one of which is .099992. The latter ROR is very close to 10% and makes more sense than a zero ROR since the "-100" amount appearing 100 years later infinitesimal value today. o Question 4 0 out of 2 points
A \$849 bond that matures in 20 years from the day of issue has coupon rate of 12.56/% per year payable quarterly. If the bond was issued 4 years ago and Jerry buys it now for \$849 and holds to maturity, what will be Jerry's effective rate of return per quarter ? Accuracy is set at the

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QUIZ 6 - Question 1 2 out of 2 points Consider two mutually...

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