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Interest Rate, Values, and Business Organizational Forms

1. You have just taken out a 10-year, $12,000 loan to purchase a new car. This loan is to be repaid in 120 equal end-of-month installments. If each of the monthly installments is $150, what is the effective annual interest rate on this car loan?

a. 6.5431
B. 7.8942
C. 8.6892
D. 8.8869
E. 9.0438

2. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.

3. Which of the following statements is most correct?

A. The present value of an annuity due will exceed the present value of an ordinary annuity.

b. The future value of an annuity due will exceed the future value of an ordinary annuity.

c. The nominal interest rate will always be greater than or equal to the effective annual interest rate

d. Statements a and b are correct

E. All of the statements above are correct

4. Which of the following could explain why a business might choose to organize as a corporation rather thatn as a sole proprietorship or a partnership.

a. Corporations generally face fewer regulations
b. Corporations generally face lower taxes.
c. Corporations generally find it easier to raise capital
d. Corporations enjoy unlimited liability
e. Statements c and d are correct.

Solution Preview

Attached is the RTF file with the answers.

1. - E

Start-up phase - the entrepreneur thinking about the business, creates a management group (himself and partners, usually), and writes a business proposal (plan). This phase is manifested by a need for money to start the business. Appropriate organizational form - Limited Liability Partnership (LLP). Essentially. it's a General Partnership which elects to operate as an LLP. Advantage - partners in an LLP enjoy ...

Solution Summary

This solution selects the correct answer and provides justifications on concepts of interest rates, present/future values, proprietorship and business organizational forms.