Company XYZ approaches a bank to borrow 500 million NOK one year from now (i.e., in...

Transcribed Image Text:

Company XYZ approaches a bank to borrow 500 million NOK one year from now (i.e., in Year 1). The bank offers the whole 500 million NOK for an annual interest of 3% in Years 2 and 3. The loan is to be repaid in Year 3. In the bond market the price of a 1-year zero coupon bond is 98% of the face value, while the price of 2-year and 3-year zero coupon bonds are 95% and 92%, respectively. Should company XYZ accept the bank's offer? Company XYZ approaches a bank to borrow 500 million NOK one year from now (i.e., in Year 1). The bank offers the whole 500 million NOK for an annual interest of 3% in Years 2 and 3. The loan is to be repaid in Year 3. In the bond market the price of a 1-year zero coupon bond is 98% of the face value, while the price of 2-year and 3-year zero coupon bonds are 95% and 92%, respectively. Should company XYZ accept the bank's offer?

Answer rating: 100% (QA)

Answer Based on the given information it appears Company XYZ should accept the banks offer Heres a b... View the full answer