Question 3

[Total 30 marks]

Assume an interest rate of 5 per cent annually, calculate the Present Value of the following cash flows:

(a) $2,800 to be received at the end of each of the first 3 years, and $1,500 at the end of each of the years 5 to 8. Round your answer to 2 decimal places.

(8 marks)

(b) $3,200 to be received every year starting from year 3 to infinity. Round your answer to 2 decimal places.

(8 marks)

(c) Compare stocks and bonds as a financing tool for corporate borrowers.

(14 marks)