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Interest Rates and the Cost of Debt

Principal and interest payment computations

Cal owes $10,000 now, a lender will carry the debt for five more years at 10 percent interest. In this particular case, the amount owed will go up by 10 percent per year for 5 years. The lender then will require that Cal pay off the loan over the next 12 years at 11 percent interest. What will his annual payment be? 2) I

Principles of Finance

(See attached file for full problem description) --- Rollins Corporation has a target capital structure consisting of 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Assume the firm has insufficient retained earnings to fund the equity portion of its capital budget. Its bonds have a 12 percent cou

Loans and compensating balances

# 22 page 233 Columbus shipping co is negotiating with 2 banks for a 100,000 loan. Bankcorp of Ohio requires a 20 percent compensating balance, discounts the loan, and wants to be paid back in four quarterly payments. Cleveland bank requires a 10 percent compensating balance does not discount the loan but wants to be paid b

Foreign Exchange Help

Question # 10: If the interest rate in the United Kingdom is 8% the interest rate in the US is 10%, the spot exchange rate is $1.75/£ and interest rate parity holds, what must the one-year forward exchange rate? Question # 11 Suppose all of the conditions in question 10 hold except that the forward rate of exchange i

Effective annual rates, value of the preferred stock

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 r

4-12: Noncontrolling interest

David Company acquired 60 percent of Mark Company for $300,000 when Mark's book value was $400,000. On that date, Mark had equipment (with a 10-year life) that was undervalued in the financial records by $60,000. Also, buildings (with a 20-year life) were undervalued by $40,000. Two years later, the following figures are reporte

What interest rate does the bond offer?

A zero coupon bond which will pay $1,000 in ten years is selling today for $422.41. What interest rate does the bond offer? Lenny loanshark charges 1% per week on his loans. What APR must he report to consumers? Assume exactly 52 weeks in a year. What is the effective annual rate? If you take out an 8,000 ca

Stock Buy Back Decision on a Zero Growth Firm

An short analysis (sheet) needs to be prepared using excel to decide whether the proposal should be accepted or rejected. --- You have the following data on Joe's Corporation: EBIT: $1,000,000 Tax rate: 40% Cost of equity: 10% Joe's is a zero growth firm, and is currently financed entirely with equit

Terms of sale-effective annual interest rate

A firm offers terms of 1/10, net 30. What effective annual interest rate does the firm earn when a customer does not take the discount? Without doing any calculations, explain what will happen to this effective rate if: a. The discount is changed to 2 percent. b. The credit period is increased to 45 days. c. The discoun

Types of Debt - Pier 1

Use the Pier 1 Imports' financial statements to answer the following questions: To obtain Pier 1 Imports' financial statements you can go to www.Pier1.com and click on the link at the bottom of the first page titled Investor's Relations and then choose Annual Reports and Proxy Statements. 1. Does Pier 1 have a significant

Index and Interest Rate Futures

Can you please provide me with brief response to my questions noted below Stock Index Futures How are stock index futures used? How are stock index futures priced? What is basis convergence? How do you hedge with stock index futures? Fundamentals of Interest Rate Futures What are T-bills and Eurodollars, and wh

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.

COMPOUNDED INTEREST

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 (http://www.stls.frb.org/) 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 http://www.federalreserve.gov/releases 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