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Maria Mudflat has sufficient funds to choose one of two investments. The same amount will be invested in either case. Choice one: ten year $100,000 5% treasury bonds issued to yield 4% per annum, the market rate. Choice two: a risky bond of the same amount that has expected cash flows of $9,000 per year for the same period. Assuming Maria purchased the risky bond above for $105,000 and the market rate is 6%, which of the following statements is TRUE?

(a) net present value is $17,080;

(b)payback occurs at the end of year 8;

(d) present value of the cash flows is $222,080

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M957204

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