Answer Happy

Yields to Maturity of Credit Instruments Suppose you are the chief financial officer of a corporation. Your company is considering the following four methods of raising $1 million as working capital: (1) To borrow a commercial bank loan of $1 million today. Repay $1,177,225 two years later. (2) To borrow a fixed payment loan of $1 million from a bank today. Repay $250,450 each year in the next five years. (3) To issue $1 million corporate bonds, sold at par with a coupon rate of 8.25% and a term to maturity of five years. (4) To issue 15,000 units of zero-coupon bond with a face value of $100, selling price at $66.67 and a term to maturity of 5 years. Which method of finance would you recommend? Explain.