Chapters6 8PracticeQ's

8/13/2019 Chapters6 8PracticeQ's

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Selected practice questions from Chapters 6 8, FIN 335, with Dr

!raham

From Chapter 6 "onds and "ond #alue

1. The stated interest payment, in dollars, made on a bond each period is called the bond's:A) Coupon.B) Face value.

C) Maturity.) !ield to maturity.") Coupon rate.Ans#er: A

$. The principal amount o% a bond that is repaid at the end o% the loan term is called the bond's:A) Coupon.B) Face value.C) Maturity.) !ield to maturity.") Coupon rate.Ans#er: B

&. The rate o% return reuired by investors in the mar(et %or o#nin a bond is called the:A) Coupon.B) Face value.C) Maturity.) !ield to maturity.") Coupon rate.Ans#er:

*. The annual coupon o% a bond divided by its %ace value is called the bond's:A) Coupon.B) Face value.

C) Maturity.) !ield to maturity.") Coupon rate.Ans#er: "

+. A bond #ith a %ace value o% 1,--- that sells %or less than 1,--- in the mar(et is called a:A) ar bond.B) iscount bond.C) remium bond.) /ero coupon bond.") Floatin rate bond.Ans#er: B

0. A bond #ith a %ace value o% 1,--- that sells %or more than 1,--- in the mar(et is called a:A) ar bond.B) iscount bond.C) remium bond.) /ero coupon bond.") Floatin rate bond.Ans#er: C

1


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. The lon2term bonds issued by the 3nited 4tates overnment are called:A) Treasury bonds.B) Municipal bonds.C) Floatin rate bonds.) 5un( bonds.") /ero coupon bonds.Ans#er: A

6. A bond that ma(es no coupon payments 7and thus is initially priced at a deep discount to parvalue) is called a 8888888 bond.A) TreasuryB) municipalC) %loatin rate) 9un(") ero couponAns#er: "

;. A bond #hich, at the election o% the holder, can be s#apped %or a %i. yield to maturity>>. mar(et premium>>>. coupon rateA) > onlyB) > and >> onlyC) >>> only) > and >>> only") >, >> and >>>


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Ans#er:

1&. >% you divide a bond's annual coupon payment by its current yield you et the 88888888888.A) yield to maturityB) investors' reuired rate o% returnC) annual coupon rate) cost o% capital

") bond priceAns#er: "

1*. ?hich o% the %ollo#in statements reardin bond pricin is true@A) The lo#er the discount rate, the more valuable the coupon payments are today.B) Bonds #ith hih coupon payments are enerally 7all else the same) more sensitive to chanes

in interest rates than bonds #ith lo#er coupon payments.C) ?hen mar(et interest rates rise, bond prices #ill also rise, all else the same.) Bonds #ith short maturities are enerally 7all else the same) more sensitive to chanes in

interest rates than bonds #ith loner maturities.") All else the same, bonds #ith larer coupon payments #ill have a lo#er price today.Ans#er: A

1+. !our bro(er o%%ers you the opportunity to purchase a bond #ith coupon payments o% ;- per yearand a %ace value o% 1---. >% the yield to maturity on similar bonds is 6=, this bond should:A) 4ell %or the same price as the similar bond reardless o% their respective maturities.B) 4ell at a premium.C) 4ell at a discount.) 4ell %or either a premium or a discount but it's impossible to tell #hich.") 4ell %or par value.Ans#er: B

10. ?hen pricin bonds, i% a bond's coupon rate is less than the reuired rate o% return, then:A) The holder o% the bond is assured o% a pro%it reardless o% #hen the bond is eventually sold.

B) The holder o% the bond #ill realie a capital ain i% the bond is held to maturity.C) The bond sells at par because the reuired rate o% return is ad9usted to re%lect the discrepancy.) The bond sells at a premium i% it has a lon maturity and at a discount i% it has a short

maturity.") The bond sells at a discount i% it has a lon maturity and at a premium i% it has a short

maturity.Ans#er: B

1. All else the same, a7n) 8888888888 #ill decrease the reuired return on a bond.A) call provisionB) lo#er bond ratinC) sin(in %und) increase in in%lation") increase in the sie o% a bond issuanceAns#er: C

16. ?hich o% the %ollo#in items enerally appears in a corporate bond uote %rom The Wall StreetJournal@A) !ield to maturityB) riinal issue priceC) Current yield) ame o% the trustee

&


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") Bond ratinAns#er: C

1;. For a discount bond, the current yield is 888888888 the yield to maturity, and the coupon rate is8888888888888 the yield to maturity.A) less than less thanB) less than reater than

C) reater than less than) reater than reater than") eual to eual toAns#er: A

$-. For a premium bond, the reuired return is less than the:

>. Current yield.>>. !ield to maturity.>>>. Coupon rate.

A) > only

B) > and >> onlyC) >> and >>> only) > and >>> only") >, >>, and >>>

$1. >% investors are uncertain that they #ill be able to sell a corporate bond uic(ly, the investors #illdemand a hiher yield in the %orm o% a7n) 888888888888.A) in%lation premiumB) liuidity ris( premiumC) interest rate ris( premium) de%ault ris( premium") increased real rate o% interest

Ans#er: B

$$. iy Corp. bonds bearin a coupon rate o% 1$=, pay coupons semiannually, have & yearsremainin to maturity, and are currently priced at ;*- per bond. ?hat is the yield to maturity@A) 1$.--=B) 1&.;;=C) 1*.+*=) 1+.$+=") 1+.+=Ans#er: CDesponse: ;*- E 1--- F, 0- MT, 0 , 2;*- , CT >G! E .$=!TM E .$= < $ E 1*.+*=

$&. ?hitesell Athletic Corporation's bonds have a %ace value o% 1,--- and a ;= coupon paidsemiannually the bonds mature in 6 years. ?hat current yield #ould be reported in The WallStreet Journali% the yield to maturity is =@A) *=B) +=C) 0=) =") 6=Ans#er: "


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Desponse:1--- F, *+ MT, 10 , &.+ >G!, CT E 1,1$-.;* Annual coupon is *+ < $ E ;-.Current !ield 7C!) E ;- G 1,1$-.;* E 6.-&=

$*. HI "nterprises issues bonds #ith a 1,--- %ace value that ma(e coupon payments o% &- every& months. ?hat is the coupon rate@A) -.&-=B) &.--=C) ;.--=

) 1$.--=") &-.--=Ans#er: Desponse: coupon rate E 7&- < *) G 1,--- E 1$=

$+. 4uppose you purchase a ero coupon bond #ith %ace value 1,---, maturin in $+ years, %or16-. ?hat is the implicit interest, in dollars, in the %irst year o% the bond's li%e@A) $.60B) ;.6*C) 1$.6) 1;.$") &-.--

Ans#er: C1--- F, $+ , 216- , CT >G! E !TM E .1= !ear 1 interest E 16- < .-1 E 1$.6

$0. 4uppose you purchase a ero coupon bond #ith a %ace value o% 1,--- and a maturity o% $+ years,%or 16-. >% the yield to maturity on the bond remains unchaned, #hat #ill the price o% the bondbe + years %rom no#@A) $+&.0*B) $6.+$C) &1-.;1) &6-.+6") +--.--Ans#er: A

1--- F, $+ , 216- , CT >G! E .1= 216- , + , .1 >G!, CT F E $+&.0*

$. ?hat is the yield to maturity on an 162year, ero coupon bond sellin %or &-= o% par value@A) *.60=B) +.60=C) 0.&=) 0.;$=") &-.--=Ans#er: 1--- F, 16 , 2&-- , CT >G! E !TM E 0.;$=

$6. 5H5 "nterprises #ants to issue si% each bond is to yield

=, ho# much #ill 5H5 receive 7inorin issuance costs) #hen the bonds are %irst sold@A) 11,$1$B) 1$,&;&C) 1+,+-+) 16,66-") $-,---Ans#er: C

Desponse: price E 1,--- G 1.-$-

E $+6.*$ proceeds E $+6.*$ < 0- E 1+,+-+There is the alebra, but #hat are the entries usin your TM (eys on your T> BA >> lus@And #hat o% the alebra and (eystro(es %or numbers $;2*- belo#@ Deconiin the alebra is

+


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important, and eG!, CT E 21,-+1

&$. 5H5 Manu%acturin 9ust issued a bond #ith a 1,--- %ace value and a coupon rate o% 6=. >% thebond has a li%e o% $- years, pays annual coupons, and the yield to maturity is .+=, #hat percento% the bond's total price is represented by the present value o% the coupons@A) *+.=B) +0.1=C) .0=) ;&.$=") 1--.-=Ans#er: CDesponse:3sin the TM (eystro(es above, you et the price o% around 1,-+1.

o#, in this problem, you must calculate the value o% the annuity stream 7the interest payments orcoupons) and divide that into the bond price. Decall that the total bond value is comprised o% the o% the coupons plus the o% the maturity payo%% o% 1---.

eystro(es %or the o% the coupons@ 6- MT, .+ >G!, $- , CT E 261+.+0. ivide thatinto 1-+1 and you et 61+.+0 G 1,-+-.; E .0=.


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&&. 5H5 Manu%acturin 9ust issued a bond #ith a 1,--- %ace value and a coupon rate o% 6=. >% thebond has a li%e o% $- years, pays annual coupons, and the yield to maturity is .+=, #hat is thepresent value o% the bond's %ace value@A) $&+.*1B) &*1.1+C) 61+.+0) 1,---.--") 1,-+-.;

Ans#er: A, Desponse: o% par E 1,--- G 1.-+$-

E $&+.*171--- F, $- , .+ >G!, CT E $&+.*1)

&*. 5H5 Manu%acturin 9ust issued a bond #ith a 1,--- %ace value and a coupon rate o% 6=. >% thebond has a li%e o% $- years, pays annual coupons, and the yield to maturity is .+=, #hat is thetotal present value o% the bond's coupon payments@A) $&+.*1B) &*1.1+C) 61+.+0) 1,---.--") 1,-+-.;Ans#er: C

Desponse: o% coupons E 6- N71 1G1.-+$-

)G .-+O E 61+.+03sin the TM (eys instead o% alebra@Coupon payments are 6= o% 1--- or 6-. 4o, 6- MT, $- , .+>G!, CT E 61+.+0

&+. The mar(et price o% a bond is 1,$&0.;*, it has 1* years to maturity, a 1,--- %ace value, and paysan annual coupon o% 1-- in semiannual installments. ?hat is the yield to maturity@A) &.16=B) *.$0=C) +.&=) 0.11=") .$=Ans#er: "

Desponse:

1,$&0.;* E +- PN1 2 1G71 Q D)$6

O G DR Q 1,--- G 71 Q D)$6

D E &.0&= !TM E &.0*= < $ E.$=The alebra is a bit annoyin, so do the TM stu%%, thusly: 21,$&0.;*, 1--- F, $6 , +-MT, CT >G! E &.0&. >G! < $ E &.0& < $ E .$* or .$=

&0. ?hat #ould you pay %or a bond that pays an annual coupon o% *+, has a %ace value o% 1,---,matures in 11 years, and has a yield to maturity o% 1-=@A) 0*$.B) +.&*C) 6--.16

) ;1-.1*") ;0.&6Ans#er: A

Desponse: price E *+ N71 2 1G1.111)

G .1O Q 1,--- G 1.111

E 0*$.TM stu%%@ 1--- F, *+ MT, 11 , 1- >G!, CT E 20*$.


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&. in oodles' bonds have a ;= coupon rate. >nterest is paid uarterly and the bonds have amaturity o% 1- years. >% the appropriate discount rate is 1-= on similar bonds, #hat is the price o%in oodles' bonds@A) ;&.$*B) ;&6.++C) ;1.$) ;6;.0&") ;;1.$Ans#er: A

1--- F, ;-G* E $$.+ MT, 1- < * E *- , 1-G*E$.+ >G!, CT E 2;&.$*

&6. Cornerstone >ndustries has a bond outstandin #ith an 6= coupon rate and a mar(et price o%6*.06. >% the bond matures in 0 years and interest is paid semiannually, #hat is the !TM@A) *.;=B) 0.;=C) 6.;=) 1-.;=") 1$.;=Ans#er:

Desponse: 6*.06 E *- PN1 2 1G71 Q D)1$

O G DR Q 1,--- G 71 Q D)1$

D E +.*+= !TM E +.*+=< $ E 1-.;=TM (eystro(es@ *- MT, 1$ , 1--- F, 26*.06 , CT >G! E +.*+ < $ E !TM E 1-.;=

&;. The ma(e2believe bonds o% Faceboo( carry a 1$= annual coupon, have a 1,--- %ace value, andmature in + years. Bonds o% euivalent ris( yield ;=. ?hat is the mar(et value o% Faceboo(bonds@A) 1,-11.$-B) 1,-6.$+C) 1,-;+.00) 1,110.0;") 1,10-.$+Ans#er:

Desponse: price E 1$- N71 2 1G1.-;+) G .-;O Q 1,--- G 1.-;+E 1,110.0;1--- F, 1$- MT, + , ; >G!, CT E 21,110.0;

*-. >% the %ollo#in bonds are identical e


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1--- F, $+G! E !TM E *.$. Then compute o% bond B:1--- F, *- MT, $+G!, CT E 2;**.+6


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*1. >% corporate bond yields are at 6.*= and you are in the &*= %ederal marinal income ta< brac(et,at #hat level o% municipal bond yields #ould you be indi%%erent bet#een o#nin corporate bondsor muni bonds@ >nore the impact o% state and local ta


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0. The mar(et in #hich previously issued securities are traded amon investors is the:A) ealer mar(et.B) Auction mar(et.C) ver2the2counter 7TC) mar(et.) 4econdary mar(et.") rimary mar(et.Ans#er:

. Common stoc( valuation reuires, amon other thins, in%ormation reardin the:

>. ">. Current dividend payment.>>>. ar value o% the common stoc(.A) > onlyB) > and >> onlyC) > and >>> only) >> and >>> only") >, >>, and >>>Ans#er: B

6. As illustrated usin the dividend ro#th model, the total return on a share o% common stoc( iscomprised o% a 88888888888.

A) capital ains yield and a dividend ro#th rateB) capital ains ro#th rate and a dividend ro#th rateC) dividend payout ratio and a reuired rate o% return) dividend yield and the present dividend") dividend yield and a capital ains yieldAns#er: "

;. ?hich o% the %ollo#in items #ould usually appear %or a stoc( uote in The Wall Street Journal@A) Capital ains rateB) ividend yieldC) umber o% shares outstandin) ar value o% the stoc(

") ividend ro#th rateAns#er: B

1-. >% dividends on a common stoc( are e. the price o% the stoc( today>>. the dividend that is e>>. the appropriate discount rate ten years %rom no#A) > onlyB) > and >> onlyC) > and >>> only

) >> and >>> only") >, >>, and >>>Ans#er: B

11. ?hich o% the %ollo#in statements reardin dividend yields is true@A) >t measures ho# much the stoc('s price #ill increase in a year.B) >t incorporates the par value o% the stoc( into the calculation.C) >t is analoous to the current yield %or a bond.) >t is al#ays reater than the stoc('s capital ains yield.") >t measures the total annual return an investor can e


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Ans#er: C

1$. ?hich o% the %ollo#in is 7are) true@>. The dividend yield on a stoc( is the annual dividend divided by the par value.>>. ?hen the constant dividend ro#th model holds, E capital ains yield.>>>. The total return on a share o% stoc( E dividend yield Q capital ains yield.A) > onlyB) >> onlyC) > and >> only

) >> and >>> only") >, >>, and >>>Ans#er:

1&. >% some shareholders have reater votin po#er than others, it must be that:A) The company has both pre%erred stoc( and common stoc( outstandin.B) The company has outstandin debentures.C) The company is located outside the 3nited 4tates in a ta% you reuire a 1$= return on yourinvestment, ho# much #ould you be #illin to pay %or a share o% this stoc( today@A) +.*+B) .$*C) 61.+$) 6+.00") ;1.&-Ans#er: CDesponse: - E &.-- G 1.1$ Q *.$+ G 1.1$$ Q 1-0 G 1.1$& E 61.+$

10. A stoc( that pays a constant dividend o% 1.+- %orever currently sells %or 1-.1. ?hat is thereuired rate o% return@

A) 1-=B) 1$=C) 1&=) 1*=") 1+=Ans#er: Desponse: 1-.1 E 1.+- G D D E 1*=

1&


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1. ABC Company's pre%erred stoc( is sellin %or &- a share. >% the reuired return is 6=, #hat #illthe dividend be t#o years %rom no#@A) $.--B) $.$-C) $.*-) $.6-") &.$+Ans#er: CDesponse: &- E G .-6 E $.*-

16. ?hat #ould you pay today %or a stoc( that is e


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$$. ABC Corporation's common stoc( dividend yield is &.01=, it 9ust paid a dividend o% $.+, and isenc. has 9ust paid a dividend o% 1.6- per share. 4ales and pro%its %or aleUose are ets dividend is e% the reuired return is 1*=, #hat is the value o% a share o% ale Uose@A) 16.--B) $+.$-C) $.6-) &-.0-") &$.*-Ans#er: "Desponse:

-E N1.6-71.-6)O G 7.1* 2 .-6) E &$.*-

$0. 4uppose that you have 9ust purchased a share o% stoc( %or *-. The most recent dividend #as $

and dividends are e


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$. The pre%erred stoc( o% the Simbauh >nstitute pays a constant annual dividend o% * and sells %or+-. !ou believe the stoc( #ill sell %or &$ in one year. !ou must, there%ore, believe that thereuired return on the stoc( #ill be 88888 percentae points 88888888 in one year.A) 6 hiherB) 6 lo#erC) 1.+ hiher) $.+ lo#er") *.+ hiherAns#er: "

Desponse: current: +- E * G D D E 6= %uture: &$ E * G D D E 1$.+

$6. A %irm's stoc( has a reuired return o% 1$=. The stoc('s dividend yield is +=. ?hat is thedividend the %irm is e


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&$. Assume the e


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CHAPTER 8 QUESTIONS BEGIN HERE

1. The di%%erence bet#een the mar(et value o% an investment and its cost is the:A) et present value.B) >nternal rate o% return.C) aybac( period.) ro%itability inde


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.A situation in #hich ta(in one investment prevents the ta(in o% another is called:A) et present value pro%ilin.B) perational ambiuity.C) Mutually essues o% scale.") Multiple rates o% return.Ans#er: C

6. The present value o% an investment's %uture cash %lo#s divided by its intial cost is the:

A) et present value.B) >nternal rate o% return.C) Averae accountin return.) ro%itability indeDD is enerally pre%erred to in ma(in correct capital budetin acceptance decisions.Ans#er: C

11. et present value 8888888888888.A) is eual to the initial investment in a pro9ectB) is eual to the present value o% the pro9ect bene%its

C) is eual to ero #hen the discount rate used is eual to the >DD) is simpli%ied by the %act that %uture cash %lo#s are easy to estimate") reuires the %irm set an arbitrary cuto%% point %or determinin #hether an investment is

acceptableAns#er: C

1$. The 8888888 decision rule is considered the WbestW in principle.A) internal rate o% returnB) paybac( periodC) averae accountin return) net present value") pro%itability inde. et present value>>>. Averae accountin return

A) > onlyB) >> onlyC) >>> only) > and >> only

") > and >>> onlyAns#er: B

10. !ou o#n some manu%acturin euipment that must be replaced. T#o di%%erent suppliers present apurchase and installation plan %or your consideration. This is an e


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$1


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1;. !ou are considerin a pro9ect that costs 0-- and has eDD)6

O G >DDR >DD E +.6*=

2$,+-- , *-- MT, 6 , CT >G! E +.6*=r you could use your CF (eys Y but #ith eually sied cash%lo#s, the TM (eys are easier.

$$. A pro9ect has an initial investment o% $+,---, #ith 0,+-- annual in%lo#s %or each o% thesubseuent + years. >% the reuired return is 1$=, #hat is the @A) V0,+--.--B) V$,**.-$C) V1,+06.;+) $1+.*0") 1,0&.61Ans#er: C

Desponse: E 2$+,--- Q 0,+-- N71 2 1G1.1$+) G .1$O E 21,+06.;+

0,+-- MT, + , 1$ >G!, CT E $&,*&1 the present value o% your in%lo#s.!our E 7>n%lo#s) V 7out%lo#s) E $&,*&1 V $+,--- or a neative 1,+0;.


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$&. ?hat is the o% the %ollo#in set o% cash %lo#s i% the reuired return is 1+=@

! e a r - 1 $ & *C a s h F l o # V 1 - , - - - V 1 , - - - 1 - , - - - 1 - , - - - V + , - - -

A) The is neativeB) *-6.$C) ;+-.**) 1,$*.;-

") *,0+0.1$Ans#er: BCF- E 21----C1 E 21---F1 E 1C$ E 1----F$ E $C& E 2+---> E 1+ E *-6.$

$*. ?ould you accept a pro9ect #hich is e


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Desponse: recover $,+-- in * years, need $,+-- G 1-,--- E *.$+ years

$. !our reuired return is 1+=. 4hould you accept a pro9ect #ith the %ollo#in cash %lo#s@e a r 1

C a s h F l o # V $ + 1 - 1 - $ +

A) o, because the >DD is +=.B) o, because the >DD is 1-=.C) !es, because the >DD is $-=.) !es, because the >DD is &-=.

") !es, because the >DD is *-=.Ans#er:

Desponse: $+ E 1- G 71 Q >DD) Q 1- G 71 Q >DD)$Q $+ G 71 Q >DD)

&>DD E &-=

CF-E2$+, C1E1-, F1E$, C$E$+, F$E1, >DD, CT, >DD E $;.;= or about &-=

$6. !ou are oin to choose bet#een t#o investments. Both cost +-,---, but investment A pays$+,--- a year %or & years #hile investment B pays $-,--- a year %or * years. >% your reuiredreturn is 1$=, #hich should you choose@A) A because it pays bac( sooner.B) A because its >DD eDD.) B because its >DD envestment

1 +-,--- 1-,---$ +,--- $+,---& 0-,--- 1+,---* *-,--- 1,---+ ;-,--- *-,---

A) ro9ect 1B) ro9ect $C) ro9ect &) ro9ect *") ro9ect +Ans#er: "

Desponse:ro9ect 1: > E 0-,--- G +-,--- E 1.$-- ro9ect $: > E 1--,--- G +,--- E 1.&&&ro9ect &: > E +,--- G 0-,--- E 1.$+- ro9ect *: > E +,--- G *-,--- E 1.*$+ro9ect +: > E 1&-,--- G ;-,--- E 1.***


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&-. !ou have a choice bet#een $ mutually e% you reuire a 1+= return, #hichinvestment should you choose@

A B! e a r C a s h F l o # C a s h F l o #

- V 1 - - , - - - V 1 $ + , - - -1 $ - , - - - + , - - -$ * - , - - - * + , - - -& 6 - , - - - * - , - - -

A) ro9ect A, because it has a smaller initial investment.B) ro9ect B, because it has a hiher .C) "ither one, because they have the same pro%itability indeG!, CT E ,;;+, #hich is less than 6,---, so your #ouldbe about a neative %ive buc(s, as #ith the alebra above.

&$. ?hat is the >DD o% an investment that costs 16,+-- and pays +,$+- a year %or + years@A) 1&=B) 1+=C) 1;=) $+=") $6=Ans#er: A

Desponse: 16,+-- E +,$+- PN1 2 1G71 Q >DD)+O G >DDR >DD E 1$.;$=

5ust use your TM (eys #ith eual cash %lo#s to calculate >DD. Thusly:216,+-- , +,$+- MT, + , CT >G! E >DD #ith eually2sied cash2%lo#s or 1$.;$=

&&. ?hat is the pro%itability inde< o% the %ollo#in investment i% the reuired return E 1-=@! e a r - 1 $ &C a s h F l o # V 1 + - + - + +

A) -.;*B) 1.-;C) 1.16) 1.$") 1.*+Ans#er: B

$+


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Desponse: E +- G 1.1 Q + G 1.1$ Q + G 1.1&

E 10&.; > E 10&.; G 1+- E 1.-;

&*. ?hat is the paybac( period %or the %ollo#in investment@! e a r - 1 $ & *C a s h F l o # V $ + , - - - 1 - , - - - 6 , - - - * , - - - $ , - - -

A) * yearsB) & yearsC) $ years) 1 year") The investment doesn't paybac(Ans#er: "Desponse: recover 1-,--- Q 6,--- Q *,--- Q $,--- E $*,--- never pays bac(

$se the followin% to answer questions 35&38'

Bill plans to open a do2it2yoursel% do bathin center in a store%ront. The bathin euipment #ill cost+-,---. Bill eDD)6

O G >DDR >DD E $*.;+= [ $-= accept2+-,--- , 1+,--- MT, 6 , CT >G! E >DD E $*.;+=


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&6.Assume the reuired return is $-=. ?hat is the pro9ect's >@ 4hould it be accepted@A) -.6+ yesB) -.6+ noC) 1.-- indi%%erent) 1.1+ yes") 1.1+ noAns#er: Desponse:

o% in%lo#s E 1+,--- N71 2 1G1.$6

) G .$O E +,++ > E +,++ G +-,--- E 1.1+ acceptAt a discount rate o% $-=, the o% the in%lo#s euals the o% ,++ plus the cost o% +-,---or +,++. 7Decall the 7>n%lo#s) E Q 7ut%lo#s))

END OF CHAPTER 8 QUESTIONS

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Chapters6 8PracticeQ's