Share
Explore BrainMass

# Interest Rates and the Cost of Debt

### Assume the interest rate is 16% on pounds sterling and 7% on the Euro.

14. Assume the interest rate is 16% on pounds sterling and 7% on the Euro. At the same time, inflation is running at an annual rate of 3% in Germany and 9% in England. a. If the Euro is selling at a one-year forward premium of 10% against the pound, is there an arbitrage opportunity? Explain. b. What is the real interest r

### Suppose that in Japan the interest rate is 8% and inflation is expected to be 3%.

6. Suppose that in Japan the interest rate is 8% and inflation is expected to be 3%. Meanwhile, the expected inflation rate in France is 12%, and the English interest rate is 14%. To the nearest whole number, what is the best estimate of the one year forward exchange premium (discount) at which the pound will be selling relative

### In early 1996, the short-term interest rate in France was 3.7%, and forecast French inflation was 1.8%.

3. In early 1996, the short-term interest rate in France was 3.7%, and forecast French inflation was 1.8%. At the same time, the short-term German interest rate was 2.6% and forecast German inflation was 1.6%. a. Based on these figures, what were the real interest rates in France and Germany? b. To what would you attribute

### Interest Rate Swap for Janutis Co.

Janutis Co. has just issued fixed rate debt at 10 percent. Yet, it prefers to convert its financing to incur a floating rate on its debt. It engages in an interest rate swap in which it swaps variable rate payments of LIBOR plus 1 percent in exchange for payments of 10 percent. The interest rates are applied to an amount that re

### Corporate Investment and Considerations

1. Corporate debt has been expanding very dramatically since World War II. What has been the impact on interest coverage, particularly since 1977? 2. What are some specific features of bond agreements? 3. What is the difference between a bond agreement and a bond indenture? 1. Why has corporate management become increasingl

### A credit card account charges 20% as a nominal annual interest rate compounded monthly.

1. A credit card account charges 20% as a nominal annual interest rate compounded monthly. What is the effective annual rate being charged on the unpaid purchase balance if the cardholder makes no payment? a. 21.55% b. 21.94% c. 0.2002% d. 18.37% 2. You invest \$1,000 in a account that earns a nominal annual rate of 10%. H

### Estimate the interest rate Nu-Mode should expect to pay on a one-year loan.

4. Nu-Mode Fashions Inc. manufactures quality women's wear and needs to borrow money to get through a brief cash shortage. Unfortunately, sales and down, and lenders considers the firm risky. The CFO has asked you to estimate the interest rate Nu-Mode should expect to pay on a one-year loan. She's told you to assume a 3% default

### Interest Bearing Notes

I am having problems with calculating the solutions for the following. 1. On October 1, 2006, Frederick Douglass Company issued a \$28,000, 10%, nine-month interestbearing note. - If the Frederick Douglass Company is preparing financial statements at December 31, 2006, the adjusting entry for accrued interest will include:

### Eurodollar futures

Today is April 1, you know you will have to pay cash for goods worth \$10 million that will be delivered on June 17. You will then sell those goods for a profit but won't receive payment until September 17. You know on June 17 you will have to borrow \$10 million for three months. The current 3 month LIBOR is 6.25%. You think the

### If interest rate parity exists, would a forward hedge be more favorable, equally favorable, or less favorable than a money market hedge on euro payables?

21. Implications of IRP for Hedging. If interest rate parity exists, would a forward hedge be more favorable, equally favorable, or less favorable than a money market hedge on euro payables? Explain.

### Computing and Recording Bad Debt Expense

Need help with the problem attached. During 2006, Wishbone Corporation had a total of \$5,000,000 in sales, of which 80% were on credit. At year-end, the Accounts Receivable balance showed a total of \$2,300,000, which had been aged as follows: Age Amount Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

### Line of Credit: Interest Rates and Compensating Balance

My company has a line of credit with a stated interest rate of 10% and compensating balance of 25% and the compensating balance earns no interest. If my company needs \$10,000, how much will I need to borrow? And if the bank offers to forget about the compensating balance requirement if my company pays interest at rate of 12%,

### Assume that the forward rate is used to forecast the spot rate. What would be the spot rate forecasted for one year ahead? If you use covered interest arbitrage for a 90 day investment, what will be the amount of U.S. dollars you will have after 90 days? According to the international Fisher effect (IFE), the Cyprus pound should adjust to a new level of.

Assume that the forward rate is used to forecast the spot rate. The forward rate of the Canadian dollar contains a 6% discount. Today's spot rate of the Canadian dollar is \$.80. What would be the spot rate forecasted for one year ahead? ) Assume the following information: You have \$1,000,000 to invest Current spot r

### Bonds: price, current yield

The Walter company issued a 25 year bond 5 years ago with a face value of \$1,000. The bond pays interest semiannually at 10% annual rate. a. What is the bond's price today if the interest rate on comparable new issues is 12%? b. What is the price today if the interest rate is 8%? C. What is the price today if the interest

### You are buying a factory for \$275,000 by paying 20% as a down payment, while the rest of the balance will be paid off over 30 years at a 10% interest rate.

You are buying a factory for \$275,000 by paying 20% as a down payment, while the rest of the balance will be paid off over 30 years at a 10% interest rate. What are the 30 equal annual payments?

### Suppose that the annual expected rates of inflation over each of the next five years are 5 percent, 6 percent, 9 percent, 13 percent, and 12 percent, respectively.

Please show step by step, how to solve with finance questions with a BA-II calculator The 2 Questions and Answers are below. Please show me how to get the answer using a BA II calculator. Please explain steps in simple form: 3. Average inflation Suppose that the annual expected rates of inflation over each of the ne

### Beginners in Investing Rate Values

"It's important to know the CD rate because that is the rate you will be receiving when you put money on a cd for a certain period of time. For example, if you put 10,000 on a cd at a six month rate of 5.5% for six months, you would receive 5.5% of 10,000 which is \$550. Sometimes you will see the 12 months rate and then you ha

### Financial Statements of Coca-Cola Company and PepsiCo

The Coke-Cola Company and PepsiCo, Inc. provide refreshments to every corner of the world. Selected data from the 2004 consolidated financial statements for The Coca-Cola Company and for PepsiCo, Inc., are presented here (in millions). CocaCola

### General Mills Ratio Analysis

I need a ratio analysis on General Mills for 2007. Identify your General Mills strengths and weaknesses. Do you feel that this firm's financial ratios depict a strong or weak firm?

### Multiple Choice Questions: cost of debt, cost of capital, leverage, dividend reinvestment plan, cost of the preferred stock, optimal mix of debt and equity financing

1.9 The before-tax cost of debt for a firm which has a 40 percent marginal tax rate is 12 percent. The after-tax cost of debt is: a. 4.8 percent b. 6.0 percent c. 7.2 percent d. 12 percent 1.10 The cost of capital reflects the cost of funds: a. over a short-run time period b. at a given point in time c. over a lo

### Your bank pays a quoted annual (nominal) rate of 12%. However, it compounds interest every week (52 times a year). What is the effective annual rate (EAR)?

Your bank pays a quoted annual (nominal) rate of 12%. However, it compounds interest every week (52 times a year). What is the effective annual rate (EAR)?

### Simple Interest and Compound Interest

If Steve invests \$5,000 in an interest bearing security paying 10% per year for 5 years, what will his investment be worth: a. if the security pays simple interest? b. if the security pays interest compounded annually? c. How much simple interest is earned over the life of the investment? d. How much compound int

### Simple and compound interest transactions.

Hi please help with the following problems. Over a period of years, an investment in an account which pays 6 percent simple interest will: a. earn the same dollar amount of income as an account returning 7 percent simple interest. b. earn more income than an account paying 6 percent compound interest. c. increase in

### Investment banking & potential conflicts of interes

Can I please have a short paragraph to answer the following question? Joe Klein is an analyst for an investment banking firm that offers both underwriting and brokerage services. Joe sends you a highly favorable report on a stock that his firm recently helped go public and for which it currently makes the market. What are t

### Corporate managers are expected to make corporate decisions that are in the best interest of

1. Corporate managers are expected to make corporate decisions that are in the best interest of A) top corporate management. B) the corporation's board of directors. C) the corporation's shareholders. D) all corporate employees. C Why? 2. Financial markets are used for trading: A) both real assets and fin

### How much did each of them invest at different rates?

Jane invested some amount at the rate of 12% simple interest and some other amount at the rate of 10% simple interest. She recieves yearly interest of \$130.00. Randy also invested in the same scheme, but he interchanged the amounts invested and recieved \$4.00 more as interest. How much amount did each of the invest at different

### Compound Interest and Time Value of Money

I just need to know how to take this equation A=P(1+r/365)^n and solve it for r this is what I came up with ((A/P)^1/n-1)365=r which though was right but when I plugged the numbers from the next part of the question the answers were not coming out right can you tell me if my equation for r is correct. Here is the question:

### Present and Future Values for Different Interest Rates

Use equations and a financial calculator to find the following values. See the hint for problems 2-1 a. An initial 500 compounded for 10years at 6 percent b. An initial 500 compounded for 10 years at 12 percent c. The present value of \$500 due in 10 years at a 6 percent discount rate. d. The present value of \$1,552.90 due

### Interest Problem - Suppose market interest rates are expected to rise.

Suppose market interest rates are expected to rise. Would a potential borrower find a fixed rate mortgage or a variable rate mortgage more attractive? Why?

### Derivatives and Risk Management- Swaps Suppose A issues floating-rate debt and B issues fixed-rate debt, after which they engage in the following swap: A will make a fixed 7.95% payment to B, and B will make a floating-rate payment equal to LIBOR to A. What are the resulting net payments of A and B?

Company A can issue floating-rate debt at LIBOR + 1%, and it can issue fixed rate debt at 9%. Company B can issue floating-rate debt at LIBOR + 1.5%, and it can issue fixed-rate debt at 9.4%. Suppose A issues floating-rate debt and B issues fixed-rate debt, after which they engage in the following swap: A will make a fixed 7.