James Lim is the CFO of ABC Company which has a liability of $1 million to be paid in 3 years time.

His bank made this offer: if the company deposited $850,000 it would be repaid $1 million in 3 years time.

Alternatives to the banks offer are the following 2 bonds with par value of $1,000:

Bond A is a 3-year zero-coupon bond that is selling at a price of 84.

Bond B is a 3-year 4% coupon bond that is selling at a price of 95.

Show the computations that allow you to choose the best option. Analyse the options and discuss why you chose the particular option.