# Net Present Value and Similar Bonds

Topics: Net present value, Bond, Investment Pages: 2 (367 words) Published: December 7, 2012
1. If you deposit \$1,500 today, how much will you have in 3 years, given that interest is 9%, compounded monthly

2. You just won \$150,000 scholarship. What is the value of this scholarship if the payment wil be made of \$50,000 per year for the next 2 years, followed by payments of \$25,000 per year for the next two years. The appropriate interest rate is 8% per year

3. A level-coupon bond has par value of \$1,000 that pays \$120 per year and has 10 years to maturity. If the yield for similar bonds is currently 14%, what is the bond's value?

4. You are thinking about investing in a \$2,000 face value bond which will mature in two years. The bond has an 7% coupon and pays interest semiannually. The current yield to maturity on similar bonds is 5%, and rates are not expected to change. What is the bond's price?

5. The company has just paid a \$3 annual dividend on its common stock. The dividend is expected to increase at a constant 5% per year indefinitely. If the required rate of return on the stock is 10%, what is its current value?

6. A firm just paid a dividend of \$0.20 per share of common stock and the current stock price is \$75. Dividends are expected to grow at a 7% rate for the foreseeable future. What is the current rate of return for this stock? (10 marks)

7. A project requires an investment of \$7,300 and generates cash flows of \$1600, \$2750, \$3800, \$3000 over years one through four. Calculate the project’s payback period and discounted payback period at a rate of 12%.

8. A firm is considering the following mutually exclusive investment projects: Project A requires an initial outlay of \$500 and will return \$120 per year for the next seven years. Project B requires an initial outlay of \$5,000 and will return \$1,350 per year for the next five years. The required rate of return is 10%. What is the net present value of the project with the highest net present value? Which project should the firm choose?