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the end of the statement at the top says 10% coupon in year 6. This week we are going over fixed income.

EXERCISE: You are about to buy a toy factory and you decide to issue debt to pay for the factory. One Banker proposes the following Bond A 6 Year bond with a 10% coupon payment, 20,000 dollar principal, and a 6% discount rate. Equal payments of 2000 years 1-5 and pay the remainder of the loan, including the 10% coupon in Year 0 Year 1 Year 2 Year 6 Year 3 Year 4 Year 5 20000 6% Cash Flow Interest Rate Discount Rate Total Cost of Financing NPV Another loan company in Europe offers you a 6 year loan with a 7% coupon payment equal payments over 6 years. Which loan do you take? Why? (Hint: the cheapest loan may or may not be the right answer) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 25000 6% Bond B Cash Flow Interest Rate Discount Rate Total Cost of Financing NPV