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    Bank Account Study Questions

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    1a. Assume you make a deposit of $15,000 into your bank account. If the bank pays 5 percent simple interest, how much interest will you have earned after 8 years?
    b. How much interest will you earn after 8 years if the bank pays compound annual interest?

    2. Specific Motors Company outstanding bond issue has a coupon rate of 8.75 percent and a current yield of 10.50 percent. It sells at a yield to maturity of 9.25 percent. The firm wishes to issue additional bonds to the public at face value. What coupon rate must the new bonds offer in order to sell at face value?

    3. ACME Co. will pay a dividend of $5 per share in 1 year. It's stock sells at $50 a share, and firms in the same industry provide an expected rate of return of 14 percent. What is the
    expected growth rate of the company's dividends?

    4. Imagine you are the financial manager of a corporation responsible for approving next year's annual operating budget. The Marketing, R&D (Research and Development) and G&A
    (General & Administrative) departments all submitted expense budgets with annual growth of less than 10%. However, the VP of Sales submitted an expense budget that is 35% higher than last year, with the explanation that the higher expenses are necessary to continue the company's revenue growth. Though it is true that the Sales organization has been consistently improving its revenue growth for the last few quarters, is this enough of a reason to approve the sales budget?

    List at least 3 assumptions that you used to make your decision. You will be graded based on the business logic of your assumptions and your decision to approve
    or deny the sales budget request.

    5. XYZ Corporation has just gone through its IPO. The total sale of stock from the primary offering was $10,500,000 net of transaction fees. The total from the secondary
    offering was $15,000,000. What is the total cash available to XYZ Corporation from its IPO?

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    Solution Preview

    1a. Assume you make a deposit of $15,000 into your bank account. If the bank pays 5 percent simple interest, how much interest will you have earned after 8 years?
    For simple interest, interest = Principle*interest rate*time
    Interest rate 5%
    Time 8 years
    Principle $15,000
    Interest $6,000.00

    b. How much interest will you earn after 8 years if the bank pays compound annual interest?
    For compound interest, interest = Principle*(1+interest rate)^time - Principle
    Interest rate 5%
    Time 8
    Principle $15,000
    Interest $7,161.83

    2. Specific Motors Company outstanding bond issue has a coupon rate of 8.75 percent and a current yield of 10.50 percent. It sells at a yield to maturity of 9.25 percent. The firm wishes to issue additional bonds to the public at face value. What coupon rate must the new bonds offer in ...

    Solution Summary

    This solution provides answers to 5 questions regarding bank account transfers.

    $2.19

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