a) (10 marks) You own 100 sh that will pay 5$ in one yr and 15$ in 2yrs. Calculate the current value of your shares if the discount rate is 12% pa. You would prefer equal dividends in both years. Calculate the size of the dividend and detail the actions you would take. Show that the value of your shares has not changed.

b) (5 marks) Calculate the % cost of not taking the discount when credit terms are 3/10 net 60. What is the % cost if you stretch the payment to 90 days? What are the disadvantages of stretching?

c) (6 marks) You can borrow 10 million $ on a LOC (line of credit) at .5% per month (which is compounded monthly), with a 4% CB (compensating balance) of the borrowed amount. Calculate the EAR if you borrow 10 million for one yr. What is the EAR if you borrow 3 million?

d) (4 marks) In (a), what is the EAR for 10 million and 3 million if you pay an up front fee 50,000$ regardless of the amount borrowed?

e) (6 marks) Calculate the EAR if you borrow 4 million$ for one year on a 5 million$ LOC (priced as a 7% pa discount loan), with a 6% CB on the face value of the borrowed amount, and a 0.1% up front fee on the face value of 5 million$.