C1. The following questions relate to safe assets: you can assume that repayment promises will be honoured in full. A company approaches a bank for a loan. The company promises to repay an interim $1mn in exactly one years' time and a final amount of $10mn in exactly three years' time. a) If interest is accrued annually at 10% per annum what is the maximum amount that should be lent by this bank? b) what would be the maximum amount if the interest rate was just 2%? Say you use present discounted value methods to make an investment in 10yr zero coupon securities that collectively promise $100mn on redemption. At the time of purchase the "going" (annually accrued) interest rate is 5%. At the end of the fifth year you run into liquidity problems and must sell your securities. Compare the monetary value of your initial investment to what your investment is worth at the end of year 5 (in Smn to one decimal place) c) if the "going" interest rate is still 5%? d) if the "going" interest rate jumps from 5% to 10% just before you need to sell? e) if the "going" interest rate collapses to 0% (from 5%) just before you need to sell