13.You are evaluating two mutually exclusive projects: Project Red and Project Green. Project Red involves an initial outlay of $1,500,000 and generates after-tax net cash inflows of $1,500,000 annually over three years. Project Green involves an initial outlay of $1,800,000 and generates annual after-tax net cash inflows of $1,700,000 for three years. Your required rate of return on either project is 12% per annum. What is the crossover rate for the two projects, and which project should be chosen?

a.

The crossover rate is the same for both projects so either project can be chosen.

b.

The crossover rate is 44.63% so project GREEN should be chosen.

c.

The crossover rate is 77.58% so project GREEN should be chosen.

d.

The crossover rate is 83.92% so project RED should be chosen.

14. How much would your unrealised loss be if you purchased a 10-year zero-coupon bond with a $1,000 par value and 4% yield to maturity, and market interest rates increased to 8% one year later? (Hint: By how much would the price drop from a year earlier? You need to comparethe price one year later with the current price.)

a.

$175.32

b.

$83.67

c.

$212.37

d.

$167.21