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Interest Rates and the Cost of Debt

A Division's Interest Expense

G+ Company is a division of GHI Company. This data pertains to G+ division. Sales amounted to $800,000. Cost of sales is 60% of sales. Other direct expenses of the division amount to 15% of sales. Allocated expenses are $90,000. Interest amounts to 10% of long-term debt. Taxes are 30% of income. Total assets are $500,000

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

Home Depot Proformas using the Percent-of-Sales Method

Based on the financial statement in the annual report for Home Depot (using 2007 figures) develop a set of pro forma financials (income and balance sheet only) for the next fiscal year-end using the percent-of-sales method. Assume that the company's sales have increased by 20%.

Tropical Tans is saving money to build a new salon.

21. Tropical Tans is saving money to build a new salon. Three years ago, they set aside $12,000 for this purpose. Today, that account is worth $16,418. What rate of interest is tropical tans earning on this money?

12,000.00 a year for ten years, with the interest rate 12%

If a man won 12,000.00 a year for ten years, with the interest rate 12%, how much does the lottery have to invest today to pay this prize to the man over the next ten years? If a man wants to save 10,000.00 by the end of 3 years, and has 2500.00 now, how much would a year end deposit to the savings be ? The interest rate is 8%?

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:

Arbitrage Strategy Problem

23. The following prices are observed. Formulate an arbitrage strategy to profit from the situation. - Interest rate is 7.25% compounded daily, for 270-day T-bills in the spot market. - Interest rate is 7.10% compounded daily, for 180-day T-bills in the spot market. - The futures rate is 7.50% for T-bills with 90 days to ma

Role of interest rates in establishing commodity prices

20. The following prices are observed. Formulate an arbitrage strategy to profit from the situation. ? Wheat is $2.00 per bushel spot and $2.03 per bushel for 180-day futures. ? U.S. interest rate is 10.00% compounded daily. ? Storage cost in a bonded, insured warehouse is $0.10 per bushel (prepaid) for a 180-day period, a

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

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%,

Prime Rate, Discount Rate, Fed Funds Rate

Please help with the following: 1.- The definition of Prime Rate, Discount Rate, Fed Funds Rate 2.- Which rate is controlled by the bank? 3.- Which rate is directly controlled by the fed? 4.- Which rate is indirectly controlled by the fed?

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

Covered Interest Arbitrage..

Assume the following information: Spot Rate today of Swiss franc = $.60 1-year forward rate as of today for Swiss franc = $.63 Expected spot rate 1-year from now = $.64 Rate on 1-year deposits denominated in Swiss francs = 7% Rate on 1-year deposits denominated in US dollars = 9% From the perspective of US investors wi

Which Bond has the Greatest Interest Rate Risk?

Which one of the following bonds has the greatest interest rate risk? a. 9-year; 7 percent coupon b. 9-year; 9 percent coupon c. 5-year; 7 percent coupon d. 5-year; 9 percent coupon e. 7-year; 7 percent coupon.

One Year T-bill Offering Vs Index-Linked Inflation Plus T-bill

You are considering a choice between investing $1,000 in a conventional one-year T-bill offering an interest rate of 8% and a one-year index-linked inflation plus T-bill offering 3% plus the rate of inflation. a. Which is the safer investment? b. Which offers the higher expected return? c. What is the real return on the ind

Consider a portfolio exhibiting an expected return of 20%

P.358 7. Consider a portfolio exhibiting an expected return of 20% in an economy in which the riskless interest rate is 8%, the expected return to the market portfolio is 13%, and the standard deviation of the return to the market portfolio is .25. Assuming this portfolio is efficient, determine: a. Its beta b. The standar

How to use the Fisher Effect to determine exchange rates

Due to the integrated nature of their capital markets investors in both the United States and the U.K. require the same real interest rate 2.5 percent on their lending. There is a consensus in capital markets that the annual inflation rate is likely to be 3.5 percent in the U.S. and 1.5 percent in the U.K. for the next three yea

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

PPP and IFE

Assume that the nominal interest rate in Mexico is 48 percent and the interest rate in the United States is 8 percent for one-year securities that are free from default risk. What does the IFE suggest about the differential in expected inflation in these two countries? Using this information and the PPP theory, describe the expe

Bond Returns.

One bond has a coupon rate of 8 percent, another a coupon rate of 12 percent. Both bonds have 10-year maturities and sell at a yield to maturity of 10 percent. If their yields to maturity next year are still 10 percent, what is the rate of return on each bond? Does the higher coupon bond give a higher rate of return?

Ending Balance

Suppose you put $100 into a savings account today, the account pays a simple annual interest rate of 6%, but compounded semiannually, and you withdraw $100 after 6 months. What would your ending balance be in 20 years after the initial $100 deposit was made?

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