Question 1 You wish to subscribe to a new weekly comic called Flying Tiger". The comic will be produced for a period of two years. You have three subscription options: Pay $3.50 each week, for 104 successive weeks. Pay $80 for a half year subscription, for four successive half year periods. Pay $280 up front for a full two year subscription. The service begins on the day that that the subscription is paid. The discount rate that reflects your opportunity cost of capital is j2=8.2% p.a. a. Illustrate each of your options (104 successive one week subscriptions, four consecutive half year subscriptions, a single two year subscription) using fully labelled timeline diagrams. [ 6 marks/ b. Determine the present value of four consecutive half year 15 marks] subscriptions. c. Find the js2 rate equivalent to ja = 8.2%. Describe and apply a sanity check to your answer. 17 marks d. Determine the present value of 104 consecutive weekly subscriptions. Describe and apply a sanity check to your answer. 17 marks/ e. On the basis of your answers to parts (b) and (d), explain which of the three subscription options is preferred. [2 marks] f. You have a 4 year coupon bond with a face value of $300, coupon rate of 10%, dividends paid once a year, and first dividend payment due in exactly one year's time. The discount rate in the market associated with bonds of similar risk is ji = 13.9%% p.a. (NB Yearly dividend = Face value * coupon rate. In year 4, we receive the yearly dividend plus the face value.) i. Illustrate the cash flow from this bond using a fully labelled timeline diagram. ii. Determine the maximum price you could expect to get if you sold this bond today, and thus explain whether selling the bond will give you enough money to subscribe to "Heroes of the Galaxy". Question 1 You wish to subscribe to a new weekly comic called Flying Tiger". The comic will be produced for a period of two years. You have three subscription options: Pay $3.50 each week, for 104 successive weeks. Pay $80 for a half year subscription, for four successive half year periods. Pay $280 up front for a full two year subscription. The service begins on the day that that the subscription is paid. The discount rate that reflects your opportunity cost of capital is j2=8.2% p.a. a. Illustrate each of your options (104 successive one week subscriptions, four consecutive half year subscriptions, a single two year subscription) using fully labelled timeline diagrams. [ 6 marks/ b. Determine the present value of four consecutive half year 15 marks] subscriptions. c. Find the js2 rate equivalent to ja = 8.2%. Describe and apply a sanity check to your answer. 17 marks d. Determine the present value of 104 consecutive weekly subscriptions. Describe and apply a sanity check to your answer. 17 marks/ e. On the basis of your answers to parts (b) and (d), explain which of the three subscription options is preferred. [2 marks] f. You have a 4 year coupon bond with a face value of $300, coupon rate of 10%, dividends paid once a year, and first dividend payment due in exactly one year's time. The discount rate in the market associated with bonds of similar risk is ji = 13.9%% p.a. (NB Yearly dividend = Face value * coupon rate. In year 4, we receive the yearly dividend plus the face value.) i. Illustrate the cash flow from this bond using a fully labelled timeline diagram. ii. Determine the maximum price you could expect to get if you sold this bond today, and thus explain whether selling the bond will give you enough money to subscribe to "Heroes of the Galaxy
