TVM and bond valuation questions (1 mark each):
a. Your case company wants to purchase an asset. To finance this asset, they approached their
bank. The bank has offered a fixed rate of 6% APR, compounded monthly, with your case
company to make monthly payments of the amount shown in Table 1 (page 4 of this
document) at the end of each month for 5 years. What amount is your case company
b. Your case company has annual revenue as shown in Table 1. Assume this revenue will grow
continuously at the annual rate shown in Table 1. Estimate annual revenue in 5 years.
c. Your case company needs to borrow funds and has several options available to it, Loans A, B
and C. The interest rates (APR) for these options are given in Table 1. What is the EAR of the
loan option the company should choose?
d. Your case company is buying new property for the amount given in Table 1. To finance this,
the company’s bank has offered an amortised loan at 4.2% APR, semi-annual compounding,
with 20 years of semi-annual payments. What semi-annual payment will the company have
to make on this loan? Assume that the entire property cost is financed and that payments are
made at the end of each period.
e. Your case company has an issue of $1,000 par value annual coupon bonds with 6 years
remaining until maturity. The annual coupon rate is given in Table 1, along with the current
price of the bonds. What is the yield to maturity on the bonds?
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