4. Suppose that a company issues a zero-coupon bond (bond with no coupons, doesnt pay interest to the bondholders, but is negotiated at a discount). Those securities have face value of GBP 10,000, and maturity in exactly 16 years. The market rate is 8% and the interest is compounded semiannually. Whats the value of this bond (manual calculations, including cash flow diagrams)?

5. A municipal bond has face value of $500,000, mature in 8 years and 3 months from now, and the coupon rate is 12%, paid semiannually. Next coupon payment happens in exactly three months. Consider the three interest rate scenarios: (a) 10%, (b) 12% and (c) 14%. Determine for each of the three interest rate scenarios, if the bonds can be sold at discount, at par or at premium. Provide the valuation of this bond in the three scenarios, using Excel PRICE formula.

6. You own a company and you desire to raise some cash ($10 million) to expand your activities. You have two possible choices here: (a) a bank loan, and (b) issuing bonds. The bank you have relationship with, offers you bullet loan (balloon loan), that requires a single payment of the loan principal ($10 million) and interest accrued at the end of its term. The interest rate of this bank loan is 12% per year, compounded monthly, and should be paid back at the end of the fifth year from now. Alternatively, you may issue $1,000 face value bonds with maturity in 5 years, that pay coupons of 12% per year, with semiannual payments. What is your opinion on the best choice, (a) or (b) for raising the cash needed for the expansion of your company activities? Draw the cash flow diagrams for the two alternatives. If the bonds are issued, how many bonds are necessary to be issued to raise the $10 million you need?