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A wealthy individual lends a firm RM 1 million for a five-year period. An interest...

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Accounting

  1. A wealthy individual lends a firm RM 1 million for a five-year period. An interest of 10% per annum is payable each year with the principal amount being repaid at the end of year 5 as a single bullet payment. At the end of the 5th year, both parties are allowed to negotiate whereby, instead of RM 1 million repayment of principal, the investor is given a 10% equity stake in the firm. Essentially an equity for a debt swap. Show the payoff profile to the investor over the +ear period during which the RM 1 million is a debt.
  2. Show the payoff profile when the investor gets the 10% equity stake in the firm.

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