Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 10 percent. Project A s Cash flow from year 0 to year 3: -1000, 400, 400, 700. Project B s Cash flow from year 0 to year 3: -500, 200, 300, 300. Which statement is correct?

		Accept A, reject B, because B has lower IRR
		Reject A, accept B, because B has higher IRR
		Accept A, reject B, because A has higher NPV
		Reject A, accept B, because B has higher NPV

1.25 points

QUESTION 6

A 6.25 percent coupon bond with 20 years left to maturity is offered for sale at $1017.20. What yield to maturity is the bond offering? Assume interest payments are paid semi-annually and face value is $1000.

		3.05%
		6.00%
		6.10%
		6.15%

1.25 points

QUESTION 7

Which of the following investments offered the lowest overall return over the past eighty years?

		Small Stocks
		Corporate bonds
		Treasury bills
		Large stocks

1.25 points

QUESTION 8

Rank the following three stocks by their total risk level, highest to lowest. Night Ryder has an average return of 9 percent and standard deviation of 28 percent. The average return and standard deviation of WholeMart are 8 percent and 25 percent; and of Fruit Fly are 10 percent and 22 percent.

		Fruit Fly, Night Ryder, WholeMart
		Night Ryder, WholeMart, Fruit Fly
		C. Night Ryder, Fruit Fly, WholeMart
		D. WholeMart, Fruit Fly, Night Ryder

1.25 points

QUESTION 9

Which of the following terms is the chance that the bond issuer will not be able to make timely payments?

		default risk
		interest rate risk
		liquidity of interest rate risk
		term structure of interest rates