1-You are considering a project X which has cash flows given below:

Year 0 Year 1 Year 2

Project X ($3,000) $15,000 ($15,000)

Project X has two IRRs, and its cost of capital is 15%. Which of the following statements best describes Project X?

A) Since both IRRs are greater than its cost of capital, it should be accepted.

B) All of these statements are not consistent with Project X.

C) No matter what its cost of capital is, it should be rejected.

D) No matter what its cost of capital is, it should be accepted.

E) If the cost of capital would be between the two IRRs, it could be accepted.

2-Which of the following statements regarding TVM is NOT CORRECT?

A)There is an inverse relation between PVIF and FVIF with the same interest rate and number of periods.

B)According to the amortization schedule of a 30-year loan, the monthly payments will decline over time.

C)A bank loan's effective annual rate can be equal to its stated nominal interest rate.

D)The present value of a future sum decreases as either the discount rate or the number discount periods per year increases.

E)An annuity due has a higher future value and a higher present value than an ordinary annuity with the same cash flows and discount rate in the same period.

3-Assume that interest rates on 5-year Treasury and 5-year IBM AAA corporate bonds are as follows:

T-bond = 3.72% IBM AAA = 4.72%

IBM bond is traded on the exchange. The difference in these rates were probably caused primarily by:

(1) Liquidity premium;

(2) Default risk premium;

(3) Maturity risk premium;

(4) Inflation premium

Group of answer choices

A-(3)

B-(1)

C-(2)

D-(4)

E-Two of (1), (2), (3), and (4)

4-ABC Bank offers to lend you $50,000 for one year at a quoted annual rate of 8.35% with monthly payments (principal and interest) at the end of each month. DEF Bank also offers to lend you $50,000 at a quoted annual rate of 8.66%, with each payment (principal and interest) at the end of each quarter. What is the difference in the effective annual rates charged by the two banks? Round your final answer to two decimal places of percentage (%).

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