(1) Suppose Danny Corporation issued a corporate bond four years ago at a par value (or face value) of $20,000 for a period of 10 years. The coupon rate is 10% for every 6 months until the maturity of the bond. If an investor is interested to purchase this bond now, what will be the maximum amount he/she is willing to pay for it if the market interest rate (i.e. the best alternative rate of return the investor can get) is 8% per year? (4 marks) Cash flow diagram: (ii) Most bonds pay a fixed coupon interest rate. Explain what would happen to people's demand for bonds and the price of the bonds under the following two situations: (1) when market interest rate falls and (2) when market interest rate rises. (b) (i) The followings show two machinery options. OPTION 1: The initial purchase price of the machine is $30,000. The salvage value at the end of the useful life will be $4,000. Maintenance costs are $2,000 for the first year and are estimated to increase by $200 per year. OPTION 2: The machine is leased for an initial payment of $2,000 plus annual payments of $3,500. There is no salvage value. Annual maintenance cost is $10,000. Put down the present value of each of the items specified for each machinery option in the table below. Assume an interest rate of 6% and a useful lifetime of 8 years. Show your calculations in the spaces below the table. Present Value (PV) of Item Option 1 Option 2 PV of Purchase/Lease PV of Salvage Value PV of Maintenance Total PV Option 1: Show calculations of PV of Salvage Value and PV of Maintenance Option 2: Show calculation of PV of Lease. (ii) What is the annual equivalent cost of capital (i.e. capital recovery), over the 8-year lifetime, for the machine with the lowest present value calculated in the above table? (1) What is the amount of money that you should invest now if you want to receive payments of $1,000 at the end of each year for ten years with the receipt of the first payment starting three years from now? Assume interest rate is 5% compounded annually. Cash flow diagram: (ii) Provide explanation on your calculation in partc(i). Include in your explanation the specific type of cash flow given and the reason of why you have to derive the present or future equivalent value at various time points