Question

company wants to invest $50,000 today into a project that has the following year end cash flows The company's cost of capital is,h-10% and they feel that any cash flow can be reinvested ath- What is the modified intermal rate of return (MIRR) of this project? (A) 14.94% (B) 17.14% (C) 14.71% (D) 18.14% 5. At today's interest rate,J2-5%, your bond portfolio has a Macaulay dration of738 years and a convexity of 140. What is the estimated percentage change in the value of your bond portfolio if interest rates rise toh-5.8%? (A) -6.352% -5.456% (B) (C) -6208% (D) -5312% A $1000 bond paying semi-annual coupons of $35 is redeemable at par on October 30, 2020. It was purchased on June 23, 2016 at a price that yieldsfz-8%. What is the full (dirty) price? The day counts for April 30, June 23, and October 30 are 120, 174, and 303 respectively. 6. You are also givn: 43533 and 6.73274 8 004 9/004 (D) $974.03 (C) $989.81 (B) S963.70 (A) $977.59

Answer 1

4.

MIRR = ( FV_c / PV_fc )^1/n -1

where, FV_c is the  future value of positive cash flows at the reinvestment rate (10%)

and PV_fc is the present value of negative cash flows at the financing rate (7%)

CF₀ = -50000
CF₁ = 30000
CF₂ = 30000
CF₃ = 30000
CF₄ = -20000
CF₅ = 30000

PV_fc = 50000 + 20000/(1+0.07)⁴ = $65257.90

FV_c = 30000*1.1⁴ + 30000*1.1³ + + 30000*1.1² + 30000 = $150153

Hence, MIRR = (150153/65257.90)^1/5 - 1 = 0.1814 = 18.14%