Purchase Solution

Interest rate

Not what you're looking for?

Ask Custom Question

Permanent assets financing
Bingo Corporation is determining whether to support $150,000 of its permanent current assets with a bank note or a short-term bond. The firm's bank offers a two-year note where the firm will receive $150,000 and repay $175,000 at the end of two years. The firm has the option to renew the loan at market rates. Alternatively, Bingo can sell 8.5 percent coupon bonds with a 2-year maturity and $1,000 par value at a price of $973.97. How many percentage points lower is the interest rate on the less expensive debt instrument?

Purchase this Solution
Solution Summary

The solution explains how to determine the interest rates on different borrowing alternatives

Solution Preview

We calculate the interest rate on the two options -
1. Bank Note - Here we borrow $150,000 and repay $175,000 at the end of 2 years. Using the compound interest formula
175,000 = ...

Purchase this Solution
Free BrainMass Quizzes
SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

View More Free Quizzes
Related BrainMass Solutions

  • Expected effective financing rate

    C) equal to the Swiss interest rate. D) less than the Swiss interest rate. E) more than the U.S. interest rate.

  • Find the Equivalent Before-tax Interest Rate

    Before-tax interest rate * (1-income tax rate) = After-tax interest rate Before tax interest rate * (1-x) = After-tax interest rate Before-tax interest rate = After-tax interest rate/(1-x) Thus, the investor will demand a minimum of After-tax interest

  • This posting addresses nominal and real interest rates.

    The real interest rate is the sum of the nominal interest rate less the rate of inflation. The appropriate rate of inflation is taken out of the total to determine the real interest rate.

  • Distinguish Between Stated Rate and Effective Rate

    STATED (NOMINAL) AND EFFECTIVE RATES OF INTEREST Stated interest rate is also called nominal interest rate which is a rate of interest quoted for a year that has not been adjusted for frequency of compounding.

  • Five-year forward rate

    118717 Five-Year Forward Rate Using Interest Rate Parity Assume that interest rate parity holds. The U.S. five-year interest rate is 5% annualized, and the Mexican five-year interest rate is 8% annualized.

  • Nominal rate and Fisher effect

    This is because the nominal interest rate is: Nominal interest rate=Real interest rate+inflation rate So the interest rate that is asked in the market is the nominal interest rate that includes the inflation factor and when the inflation changes the

  • Calculating the forward rate between two currencies

    Interest Rate Parity , equate (1) and (2), we get Forward Rate*1*(1+interest rate in UK)=1*Spot Rate*(1+Interest rate in Japan) Forward Rate=Spot Rate*(1+interest rate in Japan)/(Interest Rate in UK) Solution describes the steps to calculate the

  • Exchange rate

    a) interest rate differentials; interest rate differentials b) inflation and interest rate differentials; interest rate differentials c) income and interest rate differentials; inflation differentials d) interest rate differentials

  • Calculating the interest rates by using IRP concept

    Spot Rate of Euro=$1.20 Forward Rate of Euro=$1.23 Interest Rate in Foreign country=2.439% Interest Rate in Home country=ih=?

  • Calculating effective and nominal interest rates

    What is the effective interest rate if nominal annual interest is 12.68% computed continuously? Nominal rate of interest=r=14.8% Effective rate of interest=e^r-1= 2.71828^12.68%-1=13.519% (e=2.71828) 3.

View More Related Solutions