1. When computing NPV for risky bond, would a risk-averse use discount rate higher/equal to/lower than the one for risk-free bonds? Explain why.
2. What does the law of one price imply for the NPV of a financial asset traded in a competitive market? Explain concepts clearly.
3. Explain clearly why it is possible that, for the same firm, for the same time period:
(a) Sales may rise but net income fall.
(b) Net Income may rise but cash flow fall.
(c ) Net income may rise but stock price fall.
(d) Dividends rise but stock return fall.