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The internal rate of return evaluation technique assumes that the cash flow* can

ID: 2732162 • Letter: T

Question

The internal rate of return evaluation technique assumes that the cash flow* can be at the risk-free rate of Interest the firm's cost of capital C the project's hurdle rate 0 the project's IRR Calculate the yield-to maturity of a zero-coupon bond that costs $445 today and will pay $1000 at the end o' five years. Round your answer to the nearest tenth of a percent. 17.6% 15.4% 19.3% 24.9% A Treasury security that matures In one year has a face value of $10000 and self for $974$. What is Us yew-to-maturity, to the nearest tenth of a percent? 9.75% 2.62% 4.97% 2.55% A $10000, level coupon Eurobond pays Interest annually at the coupon rate of 5.5% and repays the principal value when it matures in 9 years. If it is currently selling for $10140, what is its yield-to-maturity? Round your answer to the nearest tenth of a percent. 4.3% 6.3% 5.3% 7.3% A 9%, semiannual, level-coupon Treasury note will mature in 6 years, at which point it will repay its principal of $10000. The note is currently selling for $10312.99. What is its true yield-to-maturity? 16.1% 8.5% 11.7% 10.4% A project will cost $20000 and is expected to produce cash flows of $9000, $8000, and $9000 at the end of e* of the first three years, respectively. If the cost of capital is 8%, what is the project's profitability index? Round your answer to the nearest hundredth. 1.30 B 1.12 C 1.17 1.08

Explanation / Answer

Q. 7) Answer:- D) The Project's IRR.

Q. 8) Answer:- D) 24.9 %

Explanation:-

Yield to maturity for five years = 1000 - 445 / 445 * 100

Yield to maturity for five years = 555 / 445 * 100

Yield to maturity for five years = 124.72

Yield to maturity per annum = 124.72 / 5 = 24.9 %.

Q. 9) Answer:- B) 2.62 %

Explanation:- Yield to maturity per annum = 10000 - 9745 / 9745 * 100 = 255 / 9745 * 100 = 2.62 % (approx)

Q. 12) P.V. of cash inflow = 9000 * P.V. factor for first year @ 8 % + 8000 * P.V. factor for second year @ 8 % + 9000 * P.V. factor for third year @ 8 %

   = 9000 * 0.926 + 8000 * 0.857 + 9000 * 0.794

= 22336

Profitability index = P.V. of cash inflow / P.V. of cash outflow

   = 22336 / 20000 = 1.12 (approx)

Conclusion:- The project's profitability index = 1.12 (Option B)

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