Your company needs fresh cash (10 Mio ). In the board meeting the CFO was proposing 10,000 bonds with yield to maturity of 100% for a) 1 or b)2 years with face values of 1,000 and coupons of i) 10 or ii) 100 . Your bank manager offers you an annuity loan of 10,000,000 with a duration of a) 1 or b) 2 years, with an interest rate of 100 %. Calculate the present values of the 6 options. The average hurdle rate (cost of capital) is 10 %.Evaluate, which solution the CFO should decide for.Solution:1...4: C(t)=10,000,000 ; Nb (Bonds) = 10,000; r(1)= 1; t(1)= 1; t(2) = 2; C(FaceValue)=1,000 ;(Coupon 1) = 10, (Coupon 2) = 100 ; PV=C(Loan, Annuity)=10,000,000 ; r(1) = 1; t(1)= 1;t(2) = 2, r(cost) = 0,1; Calculate: PV2 P5..6: i=tPV =C(i)(1 + r(i))*'1=1PV = NB + C (FaceValue)PV =r+(1+r)*'C = PV / (-PV = Etr*(1+r).(1+r(i))*5P7...8: BondsIn a) t (1) =1b) t (2) = 2Annuity LoanIn C (t)PVC(Coupon 1) = 105,050,0002,575,000C(Coupon 1) = 1005,500,0003,250,000t (1) = 120,000,00020,000,000/1,1=18,181,000The CFO should issue the Bonds with a 10 Coupon!t (2) = 213,333,33313,333,333/1,1+13,333,333/1,1^2=23,140,000