Question
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
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.
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