Aa ed incom Celculate the coupon bond wih& 1342 o None of Which of the following

ID: 2802959 • Letter: A

Question

Aa ed incom Celculate the coupon bond wih& 1342 o None of Which of the following determines the dllar amount of Inerest paid No bondhoers the above A. Original lssue discount C. Coupon rate D. Market rate 10. Which of following is true A. NPV 0 when Ww WACC D. None of the above Both ANON uanazon! an 1. As of today, AMZN's WACC-10.6% and AAPL's wACC+ 98%. Apple) are publicly traded companies. This means A AMZN's stock is more expensive than AAPL's stock D. The market expects a higher return on investment from AMZN than AAPL. An NPV of $100K means: B. The coupon on a bond AAPL issues today would be 98% C. AMZN is expected to grow faster than AAPL A. The project has $100K in revenue. B. The project has $100K in profit C. The project is expected to have $100K in revenue. D. The project is expected to have $100K in profit.

Explanation / Answer

.7.Bonds are known as fixed income security because the income from bond is fixed. If the coupon rate of a bond is 10% payable annually, and face value is $1000;the investor knows that he will receive $100 every year on a fixed date.

Answer:B

.8 Price of bond=Sum of Present value(PV) of cash flows

Present value(PV) of cash flows=(cash flow)/((1+i)^N)

i=yield per period of six months=1.5%=0.015

N=period at which cash flow occurs

Cash flow and PV of cash flows are given below:

B=A/(1.015^N)

Semi annual

PV of

Period

Cash flow

$40

39.408867

$40

38.82646995

$40

38.25267975

$40

37.68736921

$40

37.13041302

$40

36.5816877

$40

36.04107163

$40

35.50844495

$40

34.98368961

$40

34.46668927

$40

33.95732933

$1,040

869.8429188

TOTAL

1272.68763

PRICE OF BOND=$1,272.69

Answer: C

.9.Coupon rate determines the dollar amount of interest paid to the bond holders.

If bond has face value of $1,000 and coupon rate of 8% payable annually, the dollar amount of interest paid to the bond holders is (8% of 1000)$80 annually on a fixed date

Answer: C

.10.NPV means Net asset value which is expressed in unit of dollar

IRR and WACC are rates which are ratios expressed as percentages

Hence, the following are wrong:

B.NPV=WACC

C.IRR=NPV

By definition Internal rate of return (IRR) is the rate at which Net Present value is equal to Zero

Hence,

Answer :A

NPV=0.when WACC=IRR

.11 WACC means Weighted average cost of capital.

Cost of capital depends on the cost incurred to arrange capital.

Higher cost of capital means higher required return by the investors

Answer:

D. The market expects a higher return on investment from AMZN than AAPL

.12 NPV means Net Present value

Net Present value is arrived at finding the present value of each year’s projected cash in flow at an appropriate discount rate and summing up all the cash in flows and subtracting the projected initial cost.

Answer:D

The project is expected to have $100K in profit