Corporate Finance Fall 2023 Dr. Menahem Rosenberg Exercise 3- 1. A business borrows $10,000,000. Interest on the loan is 9% compounded daily. The first $5 million loan is to be paid back in 30 days, the other $5 million is to be paid back in two years plus 30 days. Calculate the two the loan repayment amounts. Assume daily compounding. 2. Given a 10% annual interest rate. Which would you prefer to receive as a wedding present? a.A security paying $500 every year, forever. b.A security paying $10,000 once, four years from today. How will your answer change if the annual rate is 5% instead? For both calculate the security present value. 3. A government bond makes a promise to pay $20,000 next year. This amount will grow in perpetuity at a 1% rate every year after the first payment. Assume 9% discount rate. a. Calculate the present value of the perpetuity. b. Calculate the present value of the perpetuity if the first payment is made 11 years from today. 4. An investor saves for retirement $6500 per month in the next 40 years. The money is invested in a stock/ bond portfolio and is expected to earn an average of 8% per year. When he retires, he believes he will live 30 years and he will invest his retirement fund in a conservative bond fund that will earn 4% per year. a. Calculate the investor's planned equal monthly withdrawals in his retirement years. b. How will your answer change if the investor saves an additional two years; that is 42 years of saving, and still 30 years of withdrawals. 5. The company you work for borrows $100 million for six years. The loan will be paid back in equal semi-annual payment. For tax purposes, your manger asks you to prepare the six years interest charges on that loan. Assume annual interest rate of 16%. 6. Evaluate the monthly payment on a 30 -year mortgage of $1,000,000 and 6.9% annual rate. How much does the borrower owe after 15 years? Try without Excel