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Interest Rates and the Cost of Debt

Compound Interest, Future Value and Present Value.

Interest rate is critical to the speed at which your investment grows. If $1 is invested at 2%, it takes approximately 34.9 years to double. If $1 is invested at 5%, it takes approximately 14.2 years to double. How many years does it take $1 to double if invested at 10% and 12%? At what interest rate would you need to invest

Simple Interest Payments

Bob plans to borrow $8,000 for five years. The loan will be repaid with a single payment after 5 years, and the interest on the loan will be computed using the simple interest method at an annual rate of 8 percent. How much will Bob have to pay in 5 years? How much will he have to pay at maturity if he's required to make annual

Compound Interest, Future Value and Present Value

If Barry purchases a $2,000 ROTH IRA when he is 25 years old and expects to earn an average of 6% per year compounded annually over 35 years (until he is 60), how much will accumulate in the investment? If Barry doesn't put the money in the IRA until he is 35 years old, how much money will accumulate in the account by the time

Compound Interest, Future Value and Present Value

You have inherited $60,000 and plan to buy a new home. If you invest $60,000 today at 5% compounded annually, how much could you spend on the house in 1 year? If you intend to spend $60,000 on a house in 1 year, how much of your inheritance should you invest today at 5%, compounded annually? How much do you have left to spend

Compound Interest, Future Value and Present Value

A person has to decide about buying a piece of land worth $28,000. It is expected, that in 2 years, the projected price of the land will be $32,500'. The person has a Compound Deposit worth $30,000 now, which earns 4% interest (compounded annually) and is bound to mature in 2 years. If the person cashes the Compound Deposit now,

Compound interest rate formula

You have deposited $2,200.00 in a bank account. What will its balance be after 4 years if the bank pays: A. 3% annual interest compounded quarterly. B. 2.25% annual interest compounded monthly. C. 2% annual interest compounded daily. Use the compound interest rate formula.

O'Henry's Data Services Unjusted Trial Balance Sheet

Benjamin O'Henry has owned and operated O'Henry's Data Services since its beginning ten years ago. From all appearances, the business has prospered. In the past few years, you have become friends with O'Henry and his wife. Recently, O'Henry mentioned that he has lost his zest for the business and would consider selling it for th

Treasury Bonds and Federal Reserve System

Question Interest earned from Treasury bonds is a. exempt from all income tax. b. exempt from federal income tax c. exempt from state and local taxes d. subject to all income taxes and All ______ are required to be members of the Federal Reserve System a. state banks b. national banks c. savings and loan asso

Risk-neutral probabilities

In the following interest rate tree, solve for the risk-neutral probabilities at time 0 and time 0.5, using the equation: p=(dt/d½ - dt+1d)/(dt+1u-dt+1d), where d½ is the discount rate (DR) at time=t. In addition, what is the value at time 0 of an option that pays $1.35 at t=1 in the down-down state. t=0 t

Bonds, Stocks, Interest, Dividends

Question about bonds purchase or not? Bakersfield Co. 8.5s16 bonds pay interest semiannually, and are quoted in the WSJ ad 88 1/2. If your rate of return is 10%, would you buy these bonds in 2001 and what is the total amt Stocks and bonds questions? Butler corp 6s06 bonds pay interest smiannually and will mature Oct 8, 2006

Debt with Warrants Analysis

I am trying to determine how to answer the following from the information and data I have completed within the problem. Question: On the basis of my findings, is the price of the debt with warrants to high or too low? Explain. Information The firm can borrow the full $3 million from Southern National Bank. The bank will c

Inflation rate/Coupon Payments

Consider an investor who, on January 1, 2011, purchases a TIPS bond with an original principal of $100,000, an 8% annual (or 4% semiannual) coupon rate, and 10 years to maturity. a. If the semiannual inflation rate during the first six months is 0.3%, calculate the principal amount used to determine the first coupon payment

Making Calculations and Comments About Finanaces

Please help with the following problem. Give the solution in an Excel spreadsheet. An individual has charged $13,573 on his or her credit card at an annual interest rate of 19.9% compounded monthly. Explain to him or her the difficulties that he or she can foresee in future years of interest getting out of control. Give 5-y

5-year and 10-year debt projections

Your advertising team has been given an ad campaign for a financial institution to introduce various financial schemes education for the public. You have been asked to compute for the financial institution the following scenario to view before the ad campaign is implemented. Create a professional Excel spreadsheet that shows an

Interest Rate: IS Curves and Monetary Policy

In a closed (no foreign sector), mixed economy with stable prices, if we assume that consumption (C) and investment (I) do not depend on the interest rate (r), can we conclude that: a. the IS curve is vertical? b. monetary policy has no effect on real income and output?

Article Reveiw and Paper

Money and Interest Rates Money and interest rates are important for individuals and businesses making decisions to finance purchases. The following articles deal with assessing conditions to finance purchases and important aspects of policy. Tom Woodruff has written an interesting and to-the-point article about effects of the

Determine how these companies could engage in an interest rate swap to decrease their cost of financing. What would you expect to happen to the spreads in the floating and fixed rate markets?

Assume that Company A has a fixed rate of 6.00% and a floating rate of LIBOR +1.40% and Company B has a fixed rate of 7.00% and a floating rate of LIBOR + 1.70%. Determine how these companies could engage in an interest rate swap to decrease their cost of financing. (Hint: you will need to assume an agreed upon rate that makes

Determine how these companies could engage in an interest rate swap to decrease their cost of financing. What would you expect to happen to the spreads in the floating and fixed rate markets?

Assume that Company A has a fixed rate of 6.00% and a floating rate of LIBOR +1.40% and Company B has a fixed rate of 7.00% and a floating rate of LIBOR + 1.70%. Determine how these companies could engage in an interest rate swap to decrease their cost of financing. (Hint: you will need to assume an agreed upon rate that makes

Senior Debt Rating

Explain why selecting a target senior debt rating is a reasonable approach to choosing a capital structure. Use an example. Explain why a target senior debt rating of single-A is a prudent objective when there is only a very limited new issue market for non-investment-grade debt, and when investor willingness to purchase tri

Annualized Interest Rates

a) Assume that as of today, the annualized two-year interest rate is 13%, while the one-year inters rate is 12%. Use only this information to estimate the one-year forward rate. b) Assume that the liquidity premium on a two-year security is 0.3% use this information to re-estimate the one-year forward rate.

Compounding Interest

I want to see in the precess where the 32071.35 came from The amount A of an investment of P dollars with annual interest rate r compounded annually for n years is given by the formula A + P(1 + r)n. Using the amount formula A teacher invested $10,000 in a bond fund that should have an average annual return of 6% per yea

Business interest rates

James Supply needs to borrow $150,000 for 6 months. Canada Bank has offered to lend the funds at a 9% annual rate subject to a 10% compensating balance. (Note: James currently maintains $0 on deposit in Canada Bank). Bills Finance Co. has offered to lend the funds at a 9% annual rate with discount-loan terms. The principal o

Three Multiple Choice Problems on debt

1. In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows, a) a loss should be recognized by the debtor. b)a gain should be recognized by the debtor. c)a new effective-interest rate must be com

International Monetary Factors

Can you discuss at least five (international) monetary factors that influence the direction of interest rates (twin deficit, inflation, interest changes abroad, political, fiscal, foreign investors, etc.).

Interest rate fundamentals: The real rate of return

Carl Foster, a trainee at an investment banking firm, is trying to get an idea of what real rate of return investors are expecting in today's marketplace. He has looked up the rate paid on 3-month U.S. Treasury bills and found it to be 5.5%. He has decided to use the rate of change in the Consumer Price Index as a proxy for the

Liquidation

Please review and help with the the following problem: The Verbrugge Publishing Company's 2007 balance sheet and income statement are as follows (in millions of dollars): 1. See attached word doc Verbrugge and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share of the $6 preferred w