4 part ii conceptual problem please provide the

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Part II (Conceptual problem). Please provide the definition of the following concepts with relevant elaborations. The following questions can require comparison and contrasts of multiple terms. You can write important examples and equations. To obtain full credits, your answers must include such supports. Your answers for each question use at most five sentences. (8 points) 9. Yield-to-maturity (2 points) Average returns to maturity Does not include credit risks Tend to increase with maturity Can be used to discount cash flows to find bond price (YTM>coupon => discount bond) 10. Please discuss on profitability index (PI) and net present value (NPV). (4 points) NPV = PV of cash inflow – PV of cash outflow, while PI = PV of benefit / PV of costs Decision rule: NPV > 0, PI > 1 The decision results can be different when evaluating multiple projects (PI prefers smaller investment project). The decision results are the same when evaluating a single project. 11. Agency Costs (2 points) Agency problem results from conflicts of interests between principals and agents. Agency costs are the costs associated with agency problem. These costs can be lost opportunity, unnecessary costs, monitoring costs. (example: luxurious office of CEO, pursuing only safe projects, making big audit department, etc.) 5
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Part III (Problem solving). Please carefully read the following questions and provide your best answers with relevant interim works. To obtain the full credits, your computational works and final answers must be expressed in a clear manner. Minor rounding errors are not panelized, but it is recommended that you keep your decimal numbers during your computational process.
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