Question

a)A project with an initial cost of $58,090 is expected to generate annual cash flows of...

a)A project with an initial cost of $58,090 is expected to generate annual cash flows of $15,700 for the next 6 years. What is the project's internal rate of return?

b)Crossfade Corp. has a bond with a par value of $2,000 that sells for $2,086.94. The bond has a coupon rate of 6.72 percent and matures in 20 years. If the bond makes semiannual coupon payments, what is the YTM of the bond?

c)

You expect to receive $3,300 upon your graduation and will invest your windfall at an interest rate of .47 percent compounded quarterly until the account is worth $4,900. How many years do you have to wait until you reach your target account value?

Homework Answers

Answer #1
a Year Cash Flows
0 -58090
1 15700
2 15700
3 15700
4 15700
5 15700
6 15700
IRR 15.84%
IRR(Values 0 to 6)
b FV 2000
PV 2086.94
PMT 67.2 =2000*6.72%/2
NPER 40 (20 x 2)
YTM 6.33%
=RATE(40,67.2,-2086.94,2000)*2
c FV = PV x (1+r)^n
Here, FV = 4900
PV = 3300
r = .47%/4
n = ?
Putting the values in formula, we get
4900 = 3300 x (1+.0047/4)^n
1.001175^n = 4900/3300
1.001175^n = 1.484848485
Taking ln both sides
n = ln(1.484848)/ln(1.001175)
n =                  336.63
So converting in years = 84.1575
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