n January 1, 2000, Argo issued a 10-year, $200M bond paying 6.5% annually in two equal coupons each June and December. It is now June 2004 and Argo just paid the June coupon on its existing bond. Rates have come down, so it is thinking of buying back the bond and issuing a 5-year, $230M bond. This bond matures in June 2009 and will pay 2.33% per year in equal coupons each June and December.

a.What is the price that Argo must pay the current bondholders to buy back the bond? (Hint - the present value of the coupon payments and the final face value)

b.What are the cash flows associated with the new bond?

c.What are the cash flow differentials to Argo? In other words, what are the net cash flows in or out for Argo each June and December when comparing both bonds?

d.What is the present value of these cash flow differentials?

e.What does the answer to Question 1, Part d tell you?

IMPORTANT: SHOW FORMULAS USED TO CALCULATE INSIDE BELOW TABLE

AutoSave O OFF A A 9 9 . C ... 2 MGMT332_Excel_Template_7 Q Home Insert Draw Page Layout Formulas Data Review View . Tell me Share Comments A Cut Calibri (Body) ap Wrap Text v General Normal Bad Good Neutral LG Copy Fill v Paste Format BIUV Merge & Center v $ ~ % " Conditional Format Calculation Check Cell Explanatory T... |Followed Hyp.. Insert Delete Format Sort & Find & Analyze Formatting as Table Clear v Filter Select Data Open recovered workbooks? Your recent changes were saved. Do you want to continue working where you left off? Yes No T17 Jx D G H M Q W AA AB AC AD AE AF AG AH in MS 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Amt. Coupon Start June Dec. June Dec. June Dec. June Dec. June Dec. June Dec. June Dec. June Dec. June Dec. June Dec. Existing Bonds 700.0 5.55% 700.000 New Bonds 300.0 3.45% Purchrice of Exist. Bonds Incremental Cash Flows NPV of Incremental CF in June 2020: Text answers here Prob. 1 Prob. 2 Mort. Amort. v. MAR 2021 + Ready 100%