Question

opera s known as the 31) General Electric Corporation has a S1000 par value bond paying annual interest of 7%. The bond mature willin 20 years. The current yield to maturity for this bond is 99. (3pts) (3pts) What is the annual coupon payment? What is the current price of the bond? _(pt) lp Does par value change if the yield to maturity changes? (yes/no) Does the coupon rate change if the yield to maturity increases? (yes / no) 32.) Calculate the NPV for a project with the following cash flows, a cost of capital of 8% and an initial investment of $100,000 Year 1 2 3 4 $25.000 $28.000 $33.000 $40,000 (5 pts) What is the Net Present Value 33. You have the choice of two projects with the following cash flows. Each project has an initial investment of 20,000. Your company wants to choose only one project and will choose the one with the quickest payback Year Project A 1 5 ,000 2 5 .000 3 5,000 4 5,000 250,000 Project B 15.000 5,000 1,000 1,000 1,000 5 250 000 (1 pt What is the Payback period for Project A (in years) What is the Payback period for Project B (in years) Which project would you recommend using the payback rule? Which proiect would you recommend if not using payback? (Circle one): (Circle one): A A I B (1 I B (

Answer 1

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DERIVATIVES BINOMIAL - Microsoft Excel (Product Activation Failed) View Add-Ins - 2x Σ AutoSum : A Dr General Wrap Text Merge & Center Fill Z TU $ - % File Home Insert Page Layout Formulas Data Review % Cut Calibri -11AA = = = Ea Copy Paste Format Painter B I U D A E Clipboard Font A1 - for Α B C D E od 8. conditional Format sett insert Delete Format a clear sort & Find a Formatting as Table Styles Styles 2 Clear Sort & Filter Editing Find & Select Alignment Number Cells F G H I J K L M N O 31 GENERAL ELECTRIC ANNUAL COUPON CURRENT PRICE = 1000 X 7% = 70 $ 817.43 CALCULATOR STROKES : SET C/Y=P/Y = 1 N= 20 1/Y=9 PMT = -70 FV =-1000 CPT PV = $ 817.43 11 12. | 14 PAR VALUE DOES NOT CHANGE NO COUPON RATE DOES NOT CHANGE NO 16 17 18 19 20 21 KOM Rea Sheet2 RISK NEUTRAL Sheet3 Sheet4 Sheets Sheet6 Sheet7 BINOMIAL BS ferences BO 120% 0 + S ER 9 * to 10 ENG 30-10-2019

- 2x Σ AutoSum : A Fill Z TU 2 Clear Sort & Filter Editing Find & Select Cells L M N O DERIVATIVES BINOMIAL - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Calibri -11AA = = = Dr Wrap Text General Ea Copy Paste Format Painter B I U D A E Merge & Center $ - % 8. Formatting as Table Styles Clipboard Font Alignment Number Styles A15 2 A B C D E F G H I J K | 15 16 32 NPV YEAR CF PVIF AT 8% PV OF CF | 18 А B A*B 19 0 -100000 1.000000 -100000.00 20 1 25000 0.925926 23148.15 21 2 28000 0.857339 24005.49 22 33000 0.793832 26196.46 4 40000 0.735030 29401.19 24 NPV = 2751.29 17 23 25 26 27 28 29 30 31 32 33 34 35 KOM Rea Sheet2 RISK NEUTRAL Sheet3 Sheet4 Sheets Sheet6 Sheet7 BINOMIAL BS ferences BO 120% 0 + S ER 9 * to 10 ENG 30-10-2019

DERIVATIVES BINOMIAL - Microsoft Excel (Product Activation Failed) View Add-Ins - 2x Σ AutoSum : A Dr General X 2 E. = File Home Insert Page Layout Formulas Data Review % Cut Calibri -11AA = = = E Copy Paste Format Painter BIU - D A Clipboard Font C A44 - A B C D E Wrap Text Merge & Center - $ % , :.: Fill 2 Clear Formatting as Table Styles Styles Sort & Filter Editing Find & Select Alignment Number Cells F G H I J K L M N O 25 26 27 YEAR CF CCFAT CF CCFAT 28 0 20000 -5000 29 30 31 32 33 34 35 36 37 -20000 5000 5000 5000 5000 250000 -20000 - 15000 -10000 -5000 -20000 15000 5000 1000 1000 1000 1000 2000 3000 5 250000 PAYBACK PERIOD FOR A PAYBACK PERIOD FOR B 4 YEARS 2 YEARS 38 USING PAYABCK PERIOD NOT USING PAYBACK PERIOD SELECT SELECT PROJECT A PROJECT B 39 40 41 42 43 44 45 KOM Rea Sheet2 RISK NEUTRAL Sheet3 Sheet4 Sheets Sheet6 Sheet7 BINOMIAL BS ferences BO 120% 0 + S E B 9 . * Ho "O ENG 30-10-2019