Question
Your professor is starting a new company, NetFlops. It will be an online streaming service showcasing only the greatest movie flops. However, to acquire the
Your professor is starting a new company, NetFlops. It will be an online streaming service showcasing only the greatest movie flops. However, to acquire the rights to the movies and to build out sufficient server capacity, he needs some startup capital. In exchange for $25,000 today, he offers to issue you a bond. The bond will have a face value of $25,000 and pay semi-annual coupon payments with an annual coupon rate of 10%. It will mature in 2 years. Given prevailing market conditions and the venture's risk, the yield to maturity on such a bond should be 13.5% (compounded semi-annually). Will you loan him the money? That is, calculate the net present value of this investment opportunity.
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