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Interest Rates and the Cost of Debt

Sustainable growth rate, effective rate of interest

1) A firm's profit margin is 10% and its asset turnover ratio is .6. It has no debt, has net income of $10 per share, and pays dividends of $4 per share. What is the sustainable growth rate? 2) A bank loan has a quoted annual rate of 6%. However, the borrower must maintain a balance of 25% of the amount of the loan, and the

Financial Accounting : Compounding Interest

BE2-19 Porter Company signed a lease for an office building for a period of 10 years. Under the lease agreement, a security deposit of $10,000 is made. The deposit will be returned at the expiration of the lease with interest compounded at 5% per year. What amount will Porter receive at the time the lease expires?


3) Would you rather have a hundred dollars today or a hundred dollars a year from now? Why?

Financial Accounting : Income Statement

Instructions Using whatever data you believe appropriate, prepare a multiple-step income statement for the Pratt Department Store for the year ended December 31, 2000. Multiple-Step Income Statement Below is a partial listing of the adjusted account balances of the Pratt Department Store at year-end on December 31, 2

Gitler Department Store: Instructions: (a) (1) Prepare a multiple-step income statement for the year: (a) (2) Prepare a retained earnings statement for the year: (a) (3) Prepare a balance sheet for December 31, 2002. (b) Journalize the adjusting entries. (c) Journalize the closing entries that are necessary.

Problem P5-3A Gitler Department Store is located near the Village Shopping Mall. At the end of the company's fiscal year on December 31, 2002, the following accounts appeared in two of its trial balances: Account title Unadjusted Adjusted Account title Unadjusted Adjusted Accounts pa

Effects of Compounding Word Problem

You win the Zillion Dollar Lottery. Starting in 1 Year, you will receive$500,000 annually for 20 years. The states lottery commission has just enough in an account of 15% compounded annually to pay this annuity. How much money is in it today?] A treasury bill has a maturity value of $10,000 5 years from now. If I receive 5% i

Theory of interest rate parity

The theory of interest rate parity states that the annual percentage differential in the forward market for a currency quated in terms of another currency is equal to the approximate difference in _______ prevailing in the two countries a. interest rates b. trade deficit rates c. GNP growth rates

1. Journalize the entry to record the amount of the cash proceeds form the sale of bonds. 2. Journalize the entries to record the following a) The first semiannual interest payment on December 31, 2002, including the amortization of the bond premium using the straight line method. b) The interest payment on June 30, 2003, and the amortization of the bond premium using the straight line method. 3) Determine the total interest expense for 2002.

Morseby Inc. produces and sells voltage regulators. On July 1,2002, Morseby Inc. issued $8,000,000 of ten year , 11% bonds at an effective interest rate of 10%. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year for the company is the calender year. 1. Journalize the entry

Rate of interest on gold loan vs rate of interest on cash loan

A bank offers a corporate client a choice between borrowing cash at 11% per annum and borrowing gold at 2% per annum. (If gold is borrowed, interest must be repaid in gold. Thus, 100 ounces borrowed today would require 102 ounces to be repaid in one years time.) The risk-free interest rate is 9.25% per annum and storage costs ar

Swap fixed rate (SFR) for a plain vanilla, two-year interest rate swap

What would be the swap fixed rate (SFR) for a plain vanilla, two-year interest rate swap, payments every six months beginning 07/01/0X, with the following assumptions/data: Swap initiation - January 1, 200X FRA1,0=2.221%; FRA1,1=2.258%; FRA1,2=2.322%; FRA1,3=2.388%;FRA1,4=2.520%;FRA1,5=2.632% (Read the notation, FRA1,0 as "si

Calculating the size of quarterly payments.

Bill borrows $1000 at 5% compounded annually. He is able to establish a sinking fund to pay off the debt and interest in 7 years. The sinking fund will earn 8% compounded quarterly. What should be the size of the quarterly payments into the fund?

Calculating the future value of a savings account.

Mr. & Mrs. Corey are newlyweds and want to purchase a home, but they need a down payment of $10,000. If they want to buy their home in 2 years, how much should they save each month in their savings account that pays 3% per annum compounded monthly?

Calculating the future value of a fund.

An employee gets paid at the end of each month and $60 is withheld from her paycheck for a retirement fund. The fund pays 1% per month (equivalent to 12% annually compounded monthly). What amount will be in the fund at the end of 30 months?

Calculating the Cost of Debt for Ying

Ying Import has several bond issuances outstanding, each making semiannual interest payments. The bonds are listed in table attached. If the corporate tax rate is 34%, what is the aftertax cost of Ying's debt? Coupon Price Face Bond Rate Quote Maturity Value 1 8.00% $106.38 5 years 10,000,000 2 7.50% $98.00 8 years 45,