Reference no: EM132937962

Questions -

Q1. A bond was issued 10 years ago with a par value of £100 and offering a coupon of 8 percent annually. The bond will be redeemed in five years' time and is currently trading at 103.50. Which of the following rates of return is this bond offering investors in the secondary market?

a. 7.64

b. 8%

c. 7.14%

d. 10.04

Q2. Fun Party Ltd is planning a new project. This project would require the use of existing bouncy castle equipment, which costs £2,000. The bouncy castle has 5 years of useful life with 4 years remaining. It is depreciated using a straight-line basis. There is no other use for this equipment. The bouncy castle equipment is outdated and there is no demand for the machine, hence no resale value. The new project would require Fun Party Ltd to abandon another project, which is expected to bring £500 cash inflows per annum for the next 3 years. Which of the cash flows are relevant for a new project?

a. No relevant cash flows in this example

b. The cost of the equipment, £2,000

c. Remaining depreciation £400 per year

d. Cash inflows from another project, £500 per year