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I and II only
You are comparing two investment options that each pay 6 percent
interest compounded annually. Both options will provide you with
$12000 of income. Option A pays $2,000 the first year followed by two
annual payments of $5,000 each. Option B pays three annual payments
of $4,000 each. Which one of the following statements is correct given
these two investment options? Assume a positive discount rate.
Option B is a perpetuity.
Option B has a higher present value at time zero.
Both options are of equal value since they both provide $12,000 of
income.
Option A has the higher future value at the end of year three.
Option A is an annuity.
The condition stating that the interest rate differential between two
countries is equal to the percentage difference between the forward
exchange rate and the spot exchange rate is called:
Uncovered interest rate parity.
The unbiased forward rates condition.
Purchasing power parity.
Interest rate parity.
The international Fisher effect.
The Dry Dock is considering a project with an initial cost of $118400.
The project’s cash inflows for years 1 through 3 are $37200, $54600 and
$46900, respectively. What is the IRR of this project?
8.42 percent
7.48 percent
8.56 percent
8.04 percent
8.22 percent
The 7 percent bonds issued by Modern Kitchens pay interest
semiannually mature in eight years and have a $1000 face value.
Currently, the bonds sell for $1,032. What is the yield to maturity?
7.20 percent
6.87 percent
6.48 percent