Answer all of the question: 1. If an investor paid more than the present value f

Question

Answer all of the question:

1. If an investor paid more than the present value for an investment, what could be said about the rate of return on that investment?

2. What are the sources of income from a bond?

3. What does the yield to maturity mean?

4. How will a company save money with a higher bond rating?

5. What must be true for real interest to be positive?

6. Why is there an inverse relationship between interest rates and bond prices?

7. What are the sources of income from a share of stock?

8. What does the Internal Rate of Return measure and how is it used?

9. What is the relationship between the IRR and the NPV?

10.How should a firm choose between mutually exclusive investments?

11. What kinds of things should be included in cash flows and what should be ignored?

12. What is the first lesson from capital market history?

13. What are T-bills? Why are they considered risk free?

14. What is the risk premium?

Explanation / Answer

1)

rate of return is less than the internal rate of return

2)

coupon payments

3)

the yield on bond when bond matures

4)

it has more trust and hence more investments

5)

inflation should be less than rate of return

6)

ssince the value of coupon paymentdecrases

7)

divends paid

8)

the intrinsic rate of retun of project

9)

the rate of retun at which NPV is zero is called IRR

10)

by comparing NPV,IRR,rate of return,payback period,profitability index

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