1.

The one-year Treasury bill rates for 2002 through 2006 are as follows:
How much interest did MR Venture Capital receive each year?
What was the average interest rate that AK Web Developers paid over the five-year period?

2. O’Brien Brothers Investment Bankers has offered Web Developers two options for its initial public offering. In
addition to the 500,000shares held by the original angel and the 6,000,000.
shares held by the venture capitalists, AK will offer5,000,000 shares to the public at $20 per share.
O’Brien Brothers is willing to either make a best effort offering and keep 4% of the retail sales or
make a firm commitment of $95,000,000. If AK Web Developers expects to sell at least 95% of the
shares, which offer should it accept?

3. Describe the steps the investment bankers and the firm must take before and after the initial public offering?

4. The provider of the original angel financing loaned AK Web Developers $2,000,000 at the end of 1994.At the end
of 2001, AK repaid the $2,000,000principal on the loan and gave him 500,000 shares in lieu of interest. At the end
of 2007, he sold the500,000 shares at an average price of $22.

What was his rate of return on the original loan? Hint: Construct a timeline of the cash flows, and find the
internal rate of return.

5. If MR Venture Capital sold its shares at the end of 2007 for the same $22 price, what was the rate of return on its
investment? Include the interest payments calculated in Question 1.

6. Assume AK Web Developers is a typical investment for MR Venture Capital, but only one investment in six is
actually successful. What is MR’s average overall rate of return? For the sake of simplicity, assume the five (out of
six) investments that fail never make any payments to MR.

7. AK Web Developers also needs to raise $2,000,000in short-term loans for working capital needs.
Which of the following loan offers should it accept?

a. Interbank offers an annual percentage rate of6%, but AK must repay the loan in twelve equal monthly
instalments. This arrangement is acceptable to AK because the need for working capital will decline during
the year. Compute the monthly payment and the EAR for this loan.

b. Bancnet offers a one-year loan discounted at 6%. How much would AK need to borrow to meet its initial
need for $2,000,000? What is the EAR for this loan?

c. Webster Bank offers a one-year loan at 6% add on interest with a compensating balance of 10%. How
much would AK need to borrow to meet its initial need for $2,000,000? What is the EAR for this loan?