6. ( T or F ) If the NPV of a project is positive, the...

6. ( T or F ) If the NPV of a project is positive, the IRR of the project is always greater than the

Discount rate.

7. ( T or F ) All corporate bonds have the same discount rate.

8. ( T or F ) In general, the term to maturity of a stock is less than 50 years.

9. ( T or F ) Other things being the same, the higher the risk of a stock, the lower the price of the

stock.

10. ( T or F ) When a bond sells at a discount, the yield to maturity of the bond exceeds its coupon rate.

Solutions

Expert Solution

1) If the NPV of a project is positive, the IRR of the project is always greater than the Discount rate. -TRUE

IRR is the rate at which NPV is zero, if NPV is positive then IRR should be greater than the discount rate.

2) All corporate bonds have the same discount rate. -FALSE

Since, corporate bonds may have different risk, so they discount rate should not be taken as same.

3) In general, the term to maturity of a stock is less than 50 years. - FALSE

The statement is false

4) Other things being the same, the higher the risk of a stock, the lower the price of the stock. -TRUE

Higher the risk of a stock, required rate of return should also be higher, making the price of the stock lower.

5) When a bond sells at a discount, the yield to maturity of the bond exceeds its coupon rate.- TRUE

If a bond's coupon rate is less than its YTM, then the bond is selling at a discount. If the YTM is less than the bond's coupon rate, then the market value of the bond is greater than par value ( premium bond).

Thumbs up Please! Thank You

jeff jeffy answered 1 year ago

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