Georgia, Inc., has identified the following two mutually exclusive projects:

Year 0 1 2 3 4

Project A -29,000 14,400 12,300 9,200 5,100

Project B -29,000 4,300 9,800 15,200 16,800

What is the IRR for each of these projects? Using the IRR decision rule, which project should the company accept?

If the required return is 11 percent, what is the NPV for each of these projects? Which project will the company choose if it applies the NPV decision rule?

Do IRR and NPV rules provide the same results? If not, which project do we need to choose. (12 points)

In the bond market, we find the following Treasury bonds and their prices. (10 points)

Bond price	$975	$98	$96
Maturity	2 years	1 year	2 years
Face value	$1,000	$100	$100
Coupon rate	10% (annual)	0%	0%

a) Compute the YTMs for the above three bonds.

b) Suppose that we need the above coupon bond for your cash requirements. However, due to some reasons, we cannot buy the coupon bond. Therefore, instead of the coupon bond, we decide to buy 1 year and 2 year zero coupon bonds. If this alternative investment has the same cash flows as the coupon bond, how many bonds we need to buy (i.e., XX 1 year bonds and OO 2 year bonds)? What is the cost for this alternative bond investment?

c) Using your work in question b), is there an arbitrage opportunity? If any, how can we transact for arbitrage? Compute the arbitrage profits. (for this question, we can assume that we can transact the coupon bond.)