Under which options will the owner pay the least interest

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Reference no: EM131977046

Question: A four-year bond pays semi-annual coupons at a coupon rate of 5.5 percent and has a par value of $1,000. If these bonds have a market price of $1,050, what yield to maturity is being implied in the pricing? The Up&Coming Import Company is in the process of taking a five-year loan of $50,000 with The Export Bank. The bank offers the company payment options:

1) Pay all of the interest (10% per year) and principal in one lump sum at the end of 5 years;

2) Pay interest at the rate of 10% per year for 4 years and then a final payment of interest and principal at the end of the 5th year;

3) Pay 5 equal payments at the end of each year inclusive of interest and part of the principal.

Under which of the three options will the owner pay the least interest and why?

Reference no: EM131977046

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