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Effective annual rates, Value of the preferred stock

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1) Bank A offers to lend me the required funds on a loan in which interest must be paid monthly, and the quoted rate is 8 percent. Bank B will charged 9 percent, with interest due at the end of the year. What is the difference in the effective annual rates charged by the two banks?

2) A corporation is growing at a constant rate of 6 percent per year. It has both common stock and non-participating preferred stock outstanding. The cost of preferred stock is 8 percent. The par value of the preferred stock is $120, and the stock has a stated dividend of 10 percent of par. What is the market value of the preferred stock?

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The solution calculates the difference in effective annual rates charged by two banks and the market value of the preferred stock.

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1) Bank A offers to lend me the required funds on a loan in which interest must be paid monthly, and the quoted rate is 8 percent. Bank B will charged 9 percent, with interest due at the end of the year. What is the difference in the effective annual rates ...

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