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Homework answers / question archive / A six-year government bond makes annual coupon payments of 4% and offers a yield of 8% annually compounded

A six-year government bond makes annual coupon payments of 4% and offers a yield of 8% annually compounded

Finance

A six-year government bond makes annual coupon payments of 4% and offers a yield of 8% annually compounded. Suppose that one year later the bond still yields 8%. The face value of the bond is £1000. What return has the bondholder earned over the 12-month period?

3.09%

4..91%

11.09%

8.0%

Question 7

A gilt maturing one year from today offers an expected real rate of return of 2.25%. If inflation is expected to be 2.2% over the same year what is the nominal rate of return on the bond? (Give your answer to two decimal places).

2.25%

0.50%

4.50%

2.55%

Question 8

Dean is an investment analyst, who has just completed a review of a project. The project has a payback period of 5 years, a discounted payback of 4 years, a negative NPV and positive IRR. Which of the following statements is most likely accurate regarding this project?

It is possible to have a negative NPV, positive IRR but not a discounted payback period shorter than a payback period.

It is not possible to have negative NPV and positive IRR.

It is possible to have a negative NPV, positive IRR and a discounted payback period shorter than a payback period.

It is possible to have a negative NPV, positive IRR and but the discounted payback period and a payback period cannot be different.

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