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Finance questions: modified IRR method, 10-year corporate bonds, total return on bonds and more...

The modified IRR (MIRR) method overcomes the problems of cash flow timing and project size that lead to criticism of the regular IRR method
A) true
B) false (correct)

A 10-year corporate bond has an annual coupon payment of 9 percent. The bond is currently selling at par ($1,000). Which of the following statements is most correct?

a. The bond's yield to maturity is 9 percent.
b. The bond's current yield is 9 percent.
c. If the bond's yield to maturity remains constant, the bond's price will remain at par.
d. Statements a and c are correct.
e. All of the statements above are correct. (correct)

The total return on a bond for a given year arises from both the coupon interest payments received for the year and the change in the value of the bond from the beginning to the end of the year.
A) true (correct)
B) false

Martin Manufacturers is considering a five-year investment which costs $100,000. The investment will produce cash flows of $25,000 each year for the first two years (t = 1 and t = 2), $50,000 a year for each of the remaining three years (t = 3, t = 4, and t = 5). The company has a cost of capital of 12 percent. What is the MIRR of the investment? (please show how to work out this problem )
ANSWER 19.45

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Please see the attached Excel file for details.

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the modified IRR (MIRR) method overcomes the problems of cash flow timing and project size that lead to criticism of the regular IRR method
A) true
B) false (correct)

This is because the MIRR does the following:

Overcomes the problem of multiple internal rates of return, and compounds cash flows at the cost of capital. What differentiates MIRR from IRR is the fact that MIRR assumes that cash inflows would be reinvested at the cost of capital.

A 10-year corporate bond has an annual coupon payment of 9 percent. The bond is ...

Solution Summary

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