1. Danny’s Karate Dojo has a commited line of credit with a maximum of $350,000 and interest rate of 6% (EAR). The loan has a commitment fee of 0.5% (EAR). If the firm borrows $300,000 at the start of the year and repays it at the end of the year, what is the total cost of the loan?
2. You purchase a $1,000 par-value bond with a 6% coupon rate, semiannual coupons and one year to maturity. The bond’s price was $1003.84 when you bought it. Six months later, you receive the coupon payment and then immediately sell the bond. The bond’s YTM upon sale was 6.2% (expressed as an APR with semiannual compounding).
(a) What was the price of the bond when you sold it?
(b) What is your 6-month return on the bond?