Quiz Space

Corporate Finance · Quiz 1 · 23 Feb 2025 · January 2025 term

Question 8: There is a project which requires an initial investment o…

Question 8

+4 marksOne correct option

There is a project which requires an initial investment of 500 units today. This project pays off 250 units after 2 years, 250 units after 4 years and 250 units after 6 years. If the prevailing constant interest rate in the economy is 10% (compounded annually) then what is the profitability index of the project?

  1. A

    18.48

  2. B

    4.68

  3. C

    1.04

  4. D

    0.80

Show answer

Correct answer

  • C

    1.04

See the whole paperTake it as a mock test

Question 8 of 25 in the IIT Madras BS Corporate Finance (Corporate Finance) Quiz 1 paper sat on 23 Feb 2025, in the January 2025 term (IIT M DEGREE AN EXAM QDB2 23 Feb 2025). It carries 4 marks.

More questions from this paper

  1. Q1What should be the rate of interest per year (annually compounded) so that your money triples in 10 years?
  2. Q2An investment is expected to yield Rs 2,000 in two years, Rs 4,000 in 4 years, and Rs 6,000 in six years. If the consta…
  3. Q3Suppose an asset earns an annual interest rate of 9% which is continuously compounded. If the asset sells for Rs 500 to…
  4. Q4What is the present value of a perpetuity that pays Rs 800 next year, grows at a rate of 2% per year thereafter and fac…
  5. Q5You discover an antique in your attic that your father purchased 40 years ago for Rs 100. You auction it and receive Rs…
  6. Q6The LIC stock is trading at Rs 800 today. LIC is expected to pay a dividend of Rs 50 per share next year. If the growth…
  7. Q7Suppose an investment costs Rs 6,000 today and pays off Rs 7,500 after two years. What is the internal rate of return o…
  8. Q9Consider the following three projects which have initial cost of Rs 5,000 today:\ Project 1: It pays Rs 200 starting ne…
  9. Q10A project earns a total of 30% return in two years. If the annual return in the first year is 12%, then what is the ann…
  10. Q11What is the annualized rate of return of an investment of 500 units that promises to return 800 units in 8 years?
  11. Q12Consider a bond that pays Rs 400 in 3 years and Rs 600 in 5 years. What are the maturity and duration of the bond, resp…
  12. Q13The table below relates to the economy of Galaland, where the typical consumer’s market basket consists of 1 pair of cl…
  13. Q14Assume Ramesh earns Rs 100 in period 1 and Rs 150 in period 2. He spends his earnings on consumption in both periods. T…
  14. Q15In 2024, the nominal interest rate in the economy of Gondwana is 12%, and the real rate of interest is reported as 8%. …
  15. Q16Your portfolio consists of two blue bonds: each has a face value of 100 units and a probability of default p_b = 15\%. …
  16. Q17What type of yield curve is often associated with an impeding recession?
  17. Q18Suresh wants to build a house. He takes a home loan of Rs 5,00,000 at a 2% monthly interest rate for 10 years. What wou…
  18. Q19Which of the following statements is true about the internal rate of return?
  19. Q20You believe in the power of compounding and decide to save Rs 100 per day by avoiding consumption of junk food. You dep…
  20. Q21In 2024, the GDP deflator is 112 in the economy of Pangia. If the nominal GDP is accounted as 14,000 units in 2024, the…
  21. Q22What is the annualized rate of return of an investment of Rs 10,000 that promises to return 20,000 in 5 years?
  22. Q23Which of the following statements is correct?
  23. Q24Sahitya Inc. is considering two different projects, A and B, for investment and can choose at most one project to inves…
  24. Q25Which of the following is not a credit rating agency?