1. A firm issues a $10 million debt obligation that pays 7.3% per year over four years. How much will it have to pay in four years?
2. Suppose that a life insurance company has guaranteed a payment of $14 million to a pension fund 4.5 years from now. If the life insurance company receives a premium of $10.4 million from the pension fund and can invest the entire premium for 4.5 years at an annual interest rate of 6.25%, will it have sufficient funds from this investment to meet the $14 million obligation?
3. A. A firm is borrowing $5,000,000 from its bank at an annual interest rate of 5.7% for the first six years and 7.2% for four years after that. How much will it pay at the end?
B. Suppose the firm in 3A can take another bank's quote of $5,000,000 for 10 years at an annual rate of 6.1% compounded semiannually. How much would it pay at maturity? Is this investment alternative more attractive than the one in 3A?
4. Suppose a firm issues a $10 million debenture maturing in 8 years and with an annual rate of 7%. Interest is paid annually at the end of the year. How much will the firm have paid out in total as of year 8, when it pays the interest plus principal?
5. A firm's head of HR knows that the following pension payments must be made in years 1- 4. The head of HR needs to go to management to request a lump sum that will satisfy this liability stream. Assuming the lump sum can be invested today at an interest rate of 4.7%, how much must be invested today to satisfy this liability stream?