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A company has a long-term loan with a book value of R10 million and a coupon rate of 10% before tax. The loan will be

A company has a long-term loan with a book value of R10 million and a coupon rate of 10% before tax. The loan will be repaid in full in three years time at a premium of 5%. Similar long-term loans are currently traded in the market at 12% per annum before tax. The company tax rate is 28% per year.

(i) Calculate the value of the loan.

(ii) Calculate the price of the loan

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