1) Describe the answers thoroughly with the process: What is it? How does it work (Do the math) and Why does it matter? (What is the impact it has on the manager in the long run) Please provide suitable exs of each situation.
i) What are the components of the nominal interest rate? What does each component pay for? (Do the math)
ii) What is an investment banker? Why would a company use one?
iii) What are the Restrictive Covenants? Why do they matter to Management?
2) Assume that a 30-year U.S. Treasury bond presents a 4% coupon rate paid semi-annually. Market price of bond is= $ 1000 equal to its par value.
a) Determine the payback period for this bond?
b) With such a long payback period, is the bond a bad investment?
c) What is the discounted payback period for bond, supposing its 4% coupon rate is required return? What common principle does this ex show regarding project’s life, its discounted payback period, and its net present value?