Consider 

Suppose that a risk-free project produces the following cash flows:

t=0	t=1	t=2	t=3
-500	600	-50	300

Moreover, suppose that there are three risk-free bonds in the market (Bonds A, B, and C) that can be described as follows:

1. a.Bond A pays a $10 coupon at t=1 and matures at t=2 when the bondholders will receive $100. Today (i.e., at t=0) the market price of the bond is Ba = $98.75.

2. b. Bond B pays a $7 coupon at t=1 and also matures at t=2 when the bondholders will receive $120. Its price today is B_b=$113.63.

3. c. Bond C is a zero-coupon bond that matures at t=3 when the bondholders will receive $100. Its price today is B_c=$75.13.

Using this information, determine the net present value (NPV) of the risk-free project.

Answer rating: 100% (QA)

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