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Interest Rates and the Cost of Debt

Nominal interest rates

True or False Nominal interest rates imply that inflation is included in the discount rate, whereas real cash flows do not include the impact of inflation.


Suppose you deposit $10,000 for 2 years at a rate of 10%. Calculate the return (A) if the bank compounds annually (n = 1). Answer: A = 10000(1 + 0.1/1)^2 = $10,201 We have first that P = $10,000, r = 0.1 (10% expressed as decimal), t = 2 (2 years) n = 1. I FIGURED THIS? PLEASE ADVISE A-$10,000(1 = .10)^2=10,000(1.1)^2 -

Pick Best Answer

1.) What is the incorrect description of a slope? a. The slope between two points is the change in y divided by the change in x. b. The slope between two pints is the rise over run. c. A slope in a linear function is a rate. d. A slope is the change in the input divided by the change in the output. e. The slope between two

A. What are the prices of the two bonds if the relevant market interest rate for both bonds is 10 percent? b. If the market interest rate increases to 12 percent, what will be the prices of the two bond? c. If the market interest rate decreases to 8 percent, what will be the prices of the two bonds?

Consider two bonds A and B. The coupon rates are 10 percent and the face values are $1,000 for both bonds. Both bonds have annual coupons. Bond A has 20 years to maturity while bond B has 10 years of maturity. a. What are the prices of the two bonds if the relevant market interest rate for both bonds is 10 percent? b. I

Calculating the price of a bond

Microhard has issued a bond with the following characteristics: Principal $1,000 Time to maturity: 20 years Coupon rate: 8 percent, compounded semiannually Semiannual payments Calculate the price of this bond if the stated annual interest rate, compounded semiannually, is a. 8 percent b. 10 percent c. 6 percent

Annuities and Interest Rates

Annuities and Interest Rates. Professor's Annuity Corp. offers a lifetime annuity to retiring professors. For a payment of $80,000 at age 65, the firm will pay the retiring professor $600 a month until death. a. If the professor's remaining life expectancy is 20 years, what is the monthly rate on this annuity? What is the eff

Times Interest Earned

A company has sales of $1 million, tax rate of 40%, net profit margin of 6% and total interest charges of $10,000 per year. What is the TIE ratio? I am unable to figure this out using the formula.

Mortgage Rates and Calculations

Can someone please assist me with addressing these mortgage related questions? (See attached file for full problem description) --- Using the following personal assumption Monthly gross income $3,000 Money you have in savings for a down payment $25,000 Your monthly payments for all existing debts $400 Property tax

Note with below-market interest rate

On January 1, 2005, Company X sold land that originally cost $400,000 to Company B. As payment, Company B gave Company X $600,000 note. The note bears an interest rate of 4% and is to be paid in three annual installments of $200,000 (plus interest on the outstanding balance). The first payment is due on December 31, 2005. The ma

Interest Rate Correlations

Using a Microsoft Word document (please include the work for the steps as detailed below). 1. Go to the Federal Reserve Bank of St. Louis's ( to access historical U.S. interest rate data, click on FRED, and then on "Interest Rates". a.) Get monthly data, from January 1955 to February 2002, on

Alternative payment plans

The following payment plans are offered on the purchase of a new refrigerator. Plan A $375 cash Plan B 8 monthly payments of $55 Plan C $100 cash down and 6 monthly payments of $50. Which plan is the best if interest is 24% annually, compounded monthly for the buyer? And for the seller?

Rent payment alternatives

Figuring out the best plan to structure the rent payment for a new office building... Alternatives are: Plan A Annual payment of $15,000 at the end of each year. Plan B Monthly payments of $1,200 at the end of each month. Assuming an interest rate of 12% compounded monthly, which payment plan is better?

Interest Rates

Investigate the data available from the Federal Reserve Board's Using a Microsoft Word document, please answer the following questions: 1. What is the difference in the interest rates on commercial paper for financial firms versus non-financial firms? 2. What was the interest rate o

Overhead rates, operating income

Please see the attached file. --- Shady Lady sells window coverings to both commercial and residential customers. The following information relates to its budgeted operations for the current year. Commercial Residential Revenues $300,000 $480,000 Direct material costs $ 30,000

Short-term assets

1. A firm needs $1 million in additional funds. These can be borrowed from a commercial bank with a loan at 6 percent for one year or from an insurance company at 9 percent for five years. The tax rate is 30 percent. A. What will be the firm's earnings under each alternative if earnings before interest and taxes (EBIT) are $

Cost of Capital: After tax cost of debt

J. Ross and Sons Inc. has a target capital structure that calls for 40 percent debt, 10 percent preferred stock, and 50 percent common equity. The firm's current before?tax cost of debt is 10 percent, and it can sell as much debt as it wishes at this rate. The firm tax rate is 40 percent. The firm's preferred stock currently s

Effective Rate of Interest: Simple, Discounted, Installment, Compensating Balance

Please figure the following problem so I can understand how to figure interest: Your company plans to borrow $5 million for 12 months, and your banker gives you a stated rate of 14 percent interest. You would like to know the effective rate of interest for the following types of loans. (Each of the following parts stands alon

Evaluation of four independent investments

Corporation is evaluating the following four independent, investment opportunities: Project A, Cost $300,000, Rate of return 14% Project B, Cost $150,000, Rate of return 10% Project C, Cost $200,000, Rate of return 13% Project D, Cost $400,000, Rate of return 11% Jackson's target capital structure is 60 percent debt and 4

Need transaction worksheet to balance with given debits and credits

I have completed the transaction worksheet but cannot get it to balance!! The credits and debits are given. I can't figure out if i'm not substracting something or is something is in the wrong column(?)-If I can't complete the transaction workwheet correctly, then the whole assignment with common-size percentages and other calcu

Georgia Electric: Compute ROI given a scenario of information

See attached file for full problem description. --- ROE Georgia Electric reported the following income statement and balance sheet for the previous year: Balance sheet: Assets Liabilities & Equity Cash $ 100,000 Inventory 1,000,000 Accounts receivable 500,000 Current assets $1,600,000 Total debt $4,000,000

Interest Rates

Select two banks in your area that offer debit cards on their checking accounts. Find the current interest rates and calculate the annual interest you would receive from each of these accounts on a deposit of $5000. If you cannot find checking accounts that offer interest on even that high of a deposit, then find out what inter

Interest Rate

Most correct true statement 1. All else =, an increase in interest rates will have a greater effect on the prices of long term bonds than it will on the prices of short term bonds 2. All else =, an increase in interest rates will have a greater effect on higher coupon bonds 3 An increase in interest rates will have a

Future Value

40. If it were evaluated with an interest rate of 0%, a 10 year regular annunity would have a present value of $3755.50. If the future (compounded) value of this annuity, evaluated a year 10, is $5,440.22, what effective annual interest rate must the analyst be using to find the future value 1. 7% 2. 8% 3. 9% 4. 10% 5. 1