1. Suppose the interest rate is 2% compounded quarterly. Find the present value of:
a) A 10-year annuity with the first payment of $5 one quartre from now, each subsequent quarterly payment increses by $2. (Ans: $1543.53)
b) A 10-year annuity with the first payment of $5 one quartre from now, each subsequent quarterly payment increses by 3%. (Ans: $334.41)
c) A perpetuity with first payment of $5 one quarter from now, each subsequent quarterly payment increases by $2. (Ans: $81,000)
d) A perpetuity with first payment of $5 one quarter from now, each subsequent quarterly payment increases by .1%. (Ans: $1250)
Please show the work it takes to get these answers.
2. The main points of negotiation between the company and the investment banker when issuing debt instruments are the interest rate, the term, the issue price, and the redemption price. On which of these points would you place most emphasis during your negotiations:
(a) During recession;
(b) During a boom period;
(c) If your company is approaching maturity;
(d) If your company is in growth phase; and
(e) If your company is generating large periodic cash flows.