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ACC00716 Finance Session 3

tag 0 Download 5 Pages / 1,159 Words tag 17-04-2021


Please complete and submit these questions on the Case Study 1 spreadsheet template provided.

a)Company XYZ has debt maturing in three years (amount shown in Table 1 on page 3 of this document).  How much should the company invest now in an account paying 5% APR, compounded monthly, to ensure it has sufficient funds to repay the debt when it matures?

b)Company XYZ has several alternative long-term cash investment options available to it, Investment A, B or C.  The interest rates (APR) for these options are given in Table 1.  What is the EAR of each investment option?  If EAR was the only factor in the decision highlight which Investment option Company XYZ should choose.

c)Company XYZ is buying new equipment for the amount given in Table 1.  To finance this, Company XYZ’s bank has offered an amortised loan at 4.5% APR, monthly compounding, with 20 years of monthly payments.  What monthly payment will Company XYZ have to make on this loan?  Assume that the entire equipment cost is financed and that payments are made at the end of each period.

d)Company XYZ has an issue of $1,000 par value annual coupon bonds with 10 years remaining until maturity.  The annual coupon rate is given in Table 1, along with the current price of the bonds.  What is the yield to maturity on the bonds?

e)Company XYZ has an issue of $1,000 par value bonds with an 8% coupon rate and quarterly coupons.  The bonds have 7 years remaining until maturity.  The current required return on these bonds is given in Table 1.  What is the current price of the bonds?

f)An investor is considering investing in Fly Safely Limited.  This is a relatively new company and there is limited data on the actual returns.  They have however provided the following return estimates:

Fly Safely Limited is currently investigating options for raising finance to expand its operations.  It is considering two options, either long term bank finance or issuing corporate bonds.  Currently the 10-year Australian Treasury bond rate (proxy for risk free rate) is 2.1%.  Fly Safely Limited has reviewed the Annual Report published by Always Reliable Limited and have noted that their average cost of debt is 7.5%.


Prepare a report analysing and comparing the risk and return for Fly Safely Limited and Always Reliable Limited.  Your report needs to consider the following

a.The overall industry context in relation to the risk profile of the comany

b.Risk and return theory

c.The meaning and relevance of beta in risk analysis

d.The relationship between risk and return

e.The relationship between company risk and the cost of debt.  

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My Assignment Help (2021) Finance Session 3 [Online]. Available from:
[Accessed 26 September 2022].

My Assignment Help. 'Finance Session 3' (My Assignment Help, 2021) <> accessed 26 September 2022.

My Assignment Help. Finance Session 3 [Internet]. My Assignment Help. 2021 [cited 26 September 2022]. Available from:

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