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Author Question: In capital budgeting, risk refers to a high degree of variability of the initial investment of a ... (Read 40 times)

jho37

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on: Jul 10, 2018
In capital budgeting, risk refers to a high degree of variability of the initial investment of a project.
 
  Indicate whether the statement is true or false

Question 2

To expand its business, the Kingston Outlet factory would like to issue a bond with par value of 1,000, coupon rate of 10 percent, and maturity of 10 years from now.
 
  What is the value of the bond if the required rate of return is (1 ) 8 percent, (2 ) 10 percent, and (3 ) 12 percent?


DylanD1323

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Reply #1 on: Jul 10, 2018
Answer to Question 1

FALSE

Answer to Question 2

Coupon payment = 1,000  0.10 = 100
(1 ) Using Financial calculator: PMT=100, N=10, I=8, FV=1000, CPT PV = 1,134.20
(2 ) 1,000 since coupon rate and required rate of return are equal.
(3 ) Using Financial calculator: PMT=100, N=10, I=12, FV=1000, CPT PV = 887


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