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The yield to maturity of a bond increases with its riskiness
The yield to maturity of a bond increases with its riskiness.
Select one:
True
False
2Which of the following statements is not true?
Select one:
a. All of THESE are true
b. A project should include opportunity costs.
c. A project should include sunk costs.
d. A project should include the discount rate.
Clear my choice
2.When deciding between two-mutually exclusive projects with different useful lives the best method to use is _______.
Select one:
a. the NPV
b. the IRR
c. None of THESE
d. the EAC
e. the profitability index
3. The rate of return of a 5-year zero-coupon bond with a selling price of $783.53 is 5%.
Select one:
True
False
Expert Solution
As the riskiness of a bond increases, the return expected from the investors will also increase. Hence,
1. The yield to maturity of a bond increases with its riskiness
Answer - True
Sunk costs are the costs a company will incur even if it does not accept the project. Hence,
2 Which of the following statements is not true?
Answer - c. A project should include sunk costs.
When 2 projects have different lives, it is difficult to compare them. For this the EACorequivalent annual costs used. Hence,
2. When deciding between two mutually exclusive projects with different useful lives the best method to use is _______.
Answer - d. the EAC
The FV should be $1000, to find this we will use the formula-
FV = PV (1+i)^n
= $783.53 (1.05)^5 = $1,000
Hence,
3. The rate of return of a 5-year zero-coupon bond with a selling price of $783.53 is 5%.
Answer - True
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