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Interest Rates and the Cost of Debt

Value of Investment When Interest is Compounded

1. If a nurse deposits $1,000 today in a bank account and the interest is compounded annually at 12%, what will be the value of this investment: a) five years from now? b) ten years from now? c) fifteen years from now? d) twenty years from now?

Theories of Interest Rate Determination

You are a financial analyst for the CMC Corporation. This corporation predicts changes in the economy, such as interest rates, retail trends, and unemployment. Your job is to educate incoming analyst on the terminology, definitions, and uses of interest rate theories, yield curves, and predictions. In your next training session,

How Banks Make Profits

Everyone has an opinion why banks are not lending money these days. One author in the article The Real Reason Banks Won't Lend Any Money talks about it from personal experience. He gives several reasons but one in particular is that, they won't start lending until interest rates move up. Discuss why you think this is a factor an

Calculate the expected interest rates in the given case.

1. Yearly rates are 4%, 5%, 6%, 7%, and 8% for the next five years. Please compute and explain the expected interest rate for both the three and four-year bonds if we show the liquidity premiums to be 1.25%, 1%, .75%, .5%, and 0%. 2. Yearly rates are 4%, 5%, 6%, 7%, and 8% for the next five years. Please compute and explain t

Problem 7.2: Notes Payable - Discount Basis, Colombo Co.

On August 1, 2010, Colombo Co's treasurer signed a note promising to pay $240,000 on December 31, 2010. The proceeds of the note were $232,000. Required: a) Calculate the discount rate used by the lender. b) Calculate the effective interest rate (APR) on the loan. c) Write the journal entry to show the effects of 1. Signin

Calculate the interest portion of the first 31 payments.

Consider a standard mortgage (360 months) with monthly payments and a nominal rate (monthly compounding) of 5.70%. What portion of the payments during the first 31 months goes toward interest? 79.39% 80.48% 82.86% 84.08% 85.83%

Calculating Implied Annual Interest Rate

Suppose the December CBOT Treasury bond futures contract has a quoted price of 80-07. The T-bond is a 20-year 6% coupon bond and the interest is paid semi-annually. What is the implied annual interest rate inherent in the futures contract? a) 6.86 b) 7.22 c) 7.60 d) 8.00 e) 8.40

Interest on Bonds Article Critique

Discuss how the article applies or relates to the financial management of a company and answer the following questions in 600 words. Use one outside source as reference. 1. What is the author's focus? 2. What points is the author making?/ 3. How does the authors points apply to financial management? 3. What is the author's

Discount Rate and Present Value

The following information lists the questions and gives background on the company in question. I would appreciate very much if you could help me to get on the right track on what I have to do to get the right answer. Questions: 1. How much would you pay for a $ 100,000 Raytheon bond today given risk, interest rate, inflation

Systemic v Unsystemic Events

Classify the following events as mostly systematic or mostly unsystematic and tell us why. Is the distinction clear in each case? a) Short term interest rates increase unexpectedly b) The interest rate a company pays on its short term debt borrowing is increased by its bank. c) Oil prices unexpectedly decline d) An oil tan

Should I Invest in Elvis?: Return on Investment for Elvis Memorabilia

Get started on the assignment by watching the 'Should I Invest in Elvis?' video on the link below then answer the following questions. http://media.pearsoncmg.com/ph/esm/chet_cleaves_cbsm9e_12/tools/RealWorldCase_before.htm One day, a man looking something like a famous entertainer from the 1970s, enters The 7th Inning's me

Debt Contracts

What trait is commonly found in debt contracts? 1-seniority 2-covenants 3-callability 4-all of the above

Real Rate of Return, Expected Nominal Interest Rate

1) Assume investors expect a 2.0 percent real rate of return over the next year. If the inflation is expected to be 0.5 percent, what is the expected nominal interest rate for a one-year U.S. Treasury security? 2) A thirty-year U.S. Treasury bond has a 4.0 percent interest rate. In contrast, a ten-year Treasury bond has an in

Real and Nominal GDP

Research and identify the current levels of the real and nominal GDP, the unemployment rate, the inflation rate and the key interest rate. Relate these variables to the current state of the economy. What is the forecast for these variables for the next 1-2 years? Choose a company that you are familiar with or that you work for a

Monthly Payments for a Retirement Account.

Lisa wants to retire on $56,000 per year forever. She estimates that her retirement account will earn 8.4% compounded annually. Lisa will make monthly payments into her account for the next 25 years which her company will match dollar for dollar. How much should the monthly payments be? (Hint) What balance is needed to earn $

Finance Problem Set: WACC & Cost of Capital

See the attached file. 1.(Weighted average cost of capital) The Target capital structure for QM Industries is 37% common Equity for the firm is 17.6%, the cost of preferred stock is 10.8%, the before-tax cost of debt is 7.2%, and the firm's tax rate is 35%, what is QM's weighted average cost of capital? QM's WACC is _____% (

Incremental Revenue and Costs in a Special Order

D. Lawrance designs and manufactures fashionable mens clothing. For the coming year the company has scheduled production of 40,000 suede jackets. Budgeted costs for this product are as follows: Unit Costs Total

Expense and Debt

Debt is the term associated with money you owe another party. What is the difference between an expense and a debt? (Give several examples)

Financial Management - External Funding, Flow of Funds, and Interest Rates

1.) Explain the process to calculate external funding needs and the importance to a business. 2.) Define the flow of funds model provided in this unit, explain each component and how funds flow from savers to producers. 3.) Explain the importance of interest rates, and how risk is considered to businesses and economic acti

Security Interest Case

Computatrix, a computer retailer, sells a new computer to Davina on credit. Davina buys the computer for her personal, home use. Computatrix attaches a security interest on the computer but does not file. Shortly thereafter, Davina sells the computer to Boulder for $2,000. Boulder buys the computer for his own personal, househol

Constructing a Table of Interest Rates

Using the following website: http://www.bondsonline.com/Todays_Market/Corporate_Bond_Spreads.php put together a table of interest rates for a company with a AAA rating, BB rating and a junk rating. - Discuss which interest rates should be used for an asset which is 1 year in length, 5 years in length, 15 years in length and 3

Computing Future and Present Values

Please see the attachment for the problems. Problem 1 a) Compute the future value of $1000 at 10% compounded annually for 6 years. b) Compute the present value of $1000 due in 4 years at 15%, compounded semiannually. Problem 2 a) Compute the future value of a 9%, 5-year ordinary annuity that pays $600 each year. b) Ass

Yield Curve Predictor

1. Discuss the Yield Curve and its usefulness in predicting recessions. Did the Yield Curve from 2004 through 2007 predict the Great Recession of 2008-2010? Based on the current Yield Curve, detail your prediction for the U.S. economy for the next two years. 2. Discuss ways in which an investor can take advantage of a flat o

Long-Term Debt and Leasing Cases: Nintendo and Barclay Polymers

A. Nintendo Corporation issued $ 10 million of 3.375 % coupon bonds 10 years ago with a 30 year maturity. Each bond has a par value of $ 1,000, and they are callable at 104 % of par value. Flotation costs were 0.5 %, and the bonds were initially sold at par. However the interest rate is currently 6.175% for 20 year bonds, and NC

Accounting Bonds

Saturn issues 6.5%, five-years bonds dated January 1, 2011, with a $500,000 par value. The bonds pay interest on June 30 and December 31 and are issued at a price of $510,666. The annual market rate is 6% on the issue date. (Effective interest amortizatoin of bond premium computing bond price) 1. Compute the total bond inter

Calculate the after-tax cost of debt for a business.

Calculate the after-tax cost of debt for the Wallace Clinic, a for-profit healthcare provider, assuming that the coupon rate set on its debt is 11 percent and its tax rate is either: a. 0 percent b. 20 percent c. 40 percent

Bonds and Interest Rates

Assume Venture Healthcare sold bonds that have a ten-year maturity, a 12 percent coupon rate with annual payments, and a $1,000 par value. a. Suppose that two years after the bonds were issued, the required interest rate fell to 7 percent. What would be the bond's value? b. Suppose that two years after the bo