You Are Considering Two Projects with the Following Cash Flows

question 24

Multiple Choice

You are considering two projects with the following cash flows: $$\begin{array} { l l l } & \text { Project A } & \text { Project B } \\& & \\\text { Year 1 } & \$ \mathbf { 2 , 5 0 0 } & \mathbf { \$ 4 , 0 0 0 } \\\text { Year 2 } & \mathbf { 3 , 0 0 0 } & \mathbf { 3 , 5 0 0 } \\\text { Year 3 } & \mathbf { 3 , 5 0 0 } & \mathbf { 3 , 0 0 0 } \\\text { Year 4 } & \mathbf { 4 , 0 0 0 } & \mathbf { 2 , 5 0 0 }\end{array}$$ Which of the following statements are true concerning these two projects?
I.Both projects have the same future value at the end of year 4, given a positive rate of return.
II.Both projects have the same future value given a zero rate of return.
III.Both projects have the same future value at any point in time, given a positive rate of return.
IV.Project A has a higher future value than project B, given a positive rate of return.

• A)II only
• B)IV only
• C)I and III only
• D)II and IV only
• E)I, II, and III only

Gain an understanding of bond valuation, including factors that affect the price of bonds and their yield.

Develop skills to calculate the present value of future income streams and the net present value (NPV) of investments.

Comprehend the relationship between interest rates and bond prices, including the impact of changes in interest rates.

Understand the basics of investment decisions, including the calculation and interpretation of the internal rate of return (IRR).

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