Answer:
The most reliable capital budgeting technique that should be used when comparing mutually exclusive alternative investments is net present value.
The correct answer is C
Explanation:
Net present value is the difference between present value of inflow and present value of outflow. NPV is superior to other investment appraisal techniques because of its value additivity. Whenever conflict arises between net present value and internal rate of return, the conflict is resolved in the favour of net present value.
Answer: C. value at risk
Explanation:
Value at Risk allows for risk to be measured and by extension controlled as it works by measuring the worst loss that can be suffered by a project, company or portfolio over a given period and given a certain probability.
It is the favorite of financial institutions like commercial banks as they are able to find out just how much losses they face when investing or loaning money out.
Answer: A 9-year T-bond with a 10.25% coupon
Explanation:
Generally the higher the coupon rate, the higher the price of the bond. This is because the price of a bond is simply the present value of all the expected Cashflow from the bond. If the bond has a higher coupon rate that would mean that more cash will be paid by the bond thereby increasing it's price.
In short, coupon rates and bond prices have a direct relationship.
Answer: b) $18,912
Explanation:
Divide the value of the investment in 9 years by the return you could be earning;
= 38,600 / (1 + 8.25%)⁹
= 18,911.9434
= $18,912
