L A tenyear riskfree zerocoupon bond sells for 50 of its mat

L A ten-year risk-free zero-coupon bond sells for 50% of its maturity value, we can therefore work out that: A. our capital gain on maturity will be 50% of the maturity value. B. the risk-free rate in markets for a term to maturity to ten years is less than 7.2%. C: our capital gain on maturity will be 100% of our investment. D. all of the above. E. none of the above. II. The book rate of return (BRR) for a project: A. is defined as the solution to .n. Co. Ct, ...Cn are cash flows of the project occurring at -0,1, B. can depend on accounting policies such as the depreciation method. C. takes scale into account. D. all of the above he Present Value of Growth Opportunities (PVGO) on a per share basis is: A. the NPV of all the future projects that the firm will undertake at t-1,2, ...o B. the difference between the current price of the stock and the present value of the cash flows generated by the assets in place C. all of the above. D. none of the above The yield to maturity on a bond with an annual coupon of 2% is 2.5%. This m that eans IV. A. the bond will sell at a discount. B. the bond will sell at par. C. the bond will sell at a premium. D. we need to know the term to maturity of the bond in order to decide whether it will sell at a premium or discount.

Solution

1.

N=10

r=?

let us say Present value = $50

So Future value = $100

future value = present value * (1+r)^n

100 = 50 * (1+r)^10

So r = (100/50) ^(1/10)-1 = 7.17 or 7.2

So B is the answer

2

Option A is IRR not BRR

ARR doest not take scale into account

So answer is B

3. PVGO = Stock price - (earnings / cost of equity)

So answer is B

4. Coupon = 2%

YTM = 2.5%

When coupon rate is less than the YTM of a bond, it will sell at discount to the par value

So answer is A