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# Interest Rates and the Cost of Debt

### Solving for the Present Value of Money

The presents value P that will amount to A dollars in 'n' years with interest compounded annually at annual interest rate 'r' is given by P=A(1+r)^(-n). Find the present value that will amount to \$50,000 in 20 years at 8% compounded annually.

### Compound interest in a savings account

The interest rate offered on a passbook savings account is 3.78% APR compounded continuously. Another account compounds interest monthly. What should the interest rate of the second account be so that the interest earned over one year is the same as the interest earned for the first account?

### Compound interest deposits

How much should you deposit at the end of the month into an IRA that pays 8% compounded monthly to have \$1million when you retire in 36 years? how much of the \$1 million comes from interest? In order to have \$1 million in 36 years, you should deposit ? each month ? of the \$1 million comes from interest ? Round to the ne

### Compound Interest and Value of Annuity

PERIODIC DEPOSIT \$80 at the end of the month RATE 7.5% compounded monthly Time 40 years find the value of annuity. b. after 40 years you will have approximately\$ ? The interest is approximately \$ ? Find the interest ? the formula required to use is A=P{(1+r)t-1 ___

### Investments and Annual Compound Interests

Assume that you place in an account subject to interest compounded annually. Use the formula A=P(1+r)t, a calculator, and a trial error. How long will it take for the investment to increase by 60% at an interest rate of 11% It will take ? years

### principal represents an amount of money deposited in a savings

The principal represents an amount of money deposited in a savings account subject to compound interest at the given rate A. use the formula A=P(1+r)t for one compounding period per year or A=P(1+r/n)nt for n compounding periods per year to find how much money there will be in the account after the given numbers of years. Assum

### Annual interest rate

A business invests \$10,000 in a savings account for two years. At the beginning of the second year, an additional \$3500 is invested. At the end of the second year, the account balance is \$15,569.75. What was the annual interest rate?

### Interest rate risk, credit rationing and minimum capital

1) Interest Rate Risk a) What is interest rate risk? b) Discuss briefly the interest rate risk for Finansbank and make suggestions to deal with it 2) Credit Rationing a) What is credit rationing? b) From a practical point of view how would you proceed to distinguish credit rationing from a decline in credit supply?

### Effective annual interest of trade discounts

Trade Credit Rates - What effect will the following actions have on the implicit interest rate charged to customers that pass up the cash discount? State the effective annual interest rate for these terms. Discuss why a buyer would want to maybe borrow money to be able to take advantage of the cash discount terms rather than

### Interest Rate and Loan Payment

Your company has received a \$50,000 loan from an industrial finance company. The annual payments are \$6,202.70. If the company is paying 9% interest per year, how many loan payments must the company make? a. 15 b. 13 c. 12 d. 19

### Bond and Interest Payment

1.Bond ISU 6 3/4 15 If I own 25 of these bonds, how much money will I receive on the next coupon payment date?

### Calculate TIE Ratio for The Pickett Corporation The Pickett Corporation has \$500,00 of debt outstanding and it pays an interest rate of 10% annually. Pickets annual sales are two million its averate rate is 30% and its profit margin on sales is five percent. If the company does not maintain a TIE ratio of at least 5 times, its bank will refuse to renew the loan and bankruptcy will result. What is Picketts TIE ratio?

The Pickett Corporation has \$500,00 of debt outstanding and it pays an interest rate of 10% annually. Pickets annual sales are two million its averate rate is 30% and its profit margin on sales is five percent. If the company does not maintain a TIE ratio of at least 5 times, its bank will refuse to renew the loan and bankrupt

### Computing Leverage and Breakeven Analysis

- A firm has sales of \$10 million, variable cost of \$5 million, EBIT of \$2 million, and a degree of combined leverage of 3.0. a. If the firm has no preferred stock, what are its annual interest charges? b. If the firm wishes to lower its degree of combined leverage to 2.5 by reducing interest charges, what will be the n

### Nominal Interest Rate calculation for a 7 year Treasury Security

The real risk free rate is 3 percent. Inflation is expected to be 3 percent this year, 4 percent next year and 3.5 percent thereafter. The maturity risk premium is estimated to be .0005 X (t-1) where t= the numer of years to maturity. What is the nominal interst rate on a 7 year treasury security?

### Universal Bank pays 7 percent interest, compounded annually, on time deposits.

Universal Bank pays 7 percent interest, compounded annually, on time deposits. Regional Bank pays 6 percent interest, compounded quarterly. a. Based on effective interest rates, in which bank would you prefer to deposit your money? Why b. Could your choice of banks be influenced by the fact that you might want to withdraw

### Calculate the budgeted direct-cost rate and the budgeted indirect cost rate.

CPAs, employs two full-time professional CPAs and five other accountants. Budgeted direct salary costs include \$150,000 for each CPA and \$40,000 per other accountant. For the 2007 year, indirect costs were budgeted at \$200,000, but actually amounted to \$225,000. Actual salaries were \$155,000 for each CPA and \$45,000 for each acc

### Determine Annual Financing Costs including total interest and the dealer fees.

Walters Manufacturing Company has been approached by a commercial ppaer dealer offering to sell an issue of commerical paper for the firm. The dealer indicates that Walters could sell a \$5 million dollar issue maturing in 182 days at an interest rate of 6 percent annum (deducted in advance). The fee to the dealer for selling t

### 3. Which items in Table 31.8 would be affected by the following events? a. There is a rise in interest rates. b. Suppliers demand interest for late payment. c. Dynamic receives an unexpected bill in the third quarter from the Internal Revenue Service for underpayment of taxes in previous years.

I need help with problem 3. Please see attachments. 3. Which items in Table 31.8 would be affected by the following events? a. There is a rise in interest rates. b. Suppliers demand interest for late payment. c. Dynamic receives an unexpected bill in the third quarter from the Internal Revenue Service for underpayment

### Interest and rate of cost

8) Warren calls home from Iraq at a rate (in dollars) of \$2.25 for the first minute plus \$.20 for each additional minute. If his total bill for the call is \$11.65, then for how many minutes did he talk altogether? (Don't forget the first minute). 9) Lindsey is driving on the Beltway on her way to the UMUC campus. Her car

### Need help

I need help with the attached finance questions.

### On the day of the child's birth, a proud parent deposits an amount of money into a compound interest savings account that will earn 5% each year. On the child's eighteenth birthday, the account will have accumulated \$10,000. How much did the parent deposit on the day of the child's birth?

On the day of the child's birth, a proud parent deposits an amount of money into a compound interest savings account that will earn 5% each year. On the child's eighteenth birthday, the account will have accumulated \$10,000. How much did the parent deposit on the day of the child's birth?

### Relationship between interest rate and maturity

What's a simple way to assess and compare the default risk of publicly traded bonds? Describe how a bond's interest rate risk is related to its maturity.

### Bad Debt Ratios for Universal Bed Corporation

1. As treasurer of the Universal Bed Corporation, Aristotle Procrustes is worried about his bad debt ratio, which is currently running at 6 percent. He believes that imposing a more stringent credit policy might reduce sales by 5 percent and reduce the bad debt ratio to 4 percent. If the cost of goods sold is 80 percent of the s

### Government debt rating and funding capital building

What is the significance of a government's debt rating on its funding of capital building projects?

### Finance - The Calculation of Compound Interest

5. Summary - In 1991 an Apache tracker was promised \$10,000 for helping to capture the notorious outlaw Denny the Menace. In 2006 the daughter of the tracker claimed that this reward had not been paid. The Treasury Secretary stated that if this was true, the government would be happy to pay the \$10,000. However, the daughter al

### Interest

suppose the deposit \$20,000 for 5 yrs @ 8% rate what is the return annually (n = 1) and quarterly (n = 4). Round both to the hundredth place. c) Does compounding annually or quarterly yield more interest and explain d) if a bank compounds continuously the the formula used is A=Pe^rt where e is a constant and equals

### Prime or Subprime: The Good, the Bad and the Ugly

Prime or Subprime: The Good, the Bad and the Ugly I am sure most of you, at least I hope so, have followed the national and international effects the meltdown in the Subprime mortgage market. Before we get started, please answer the following question: 1. What exactly is the Subprime Mortgage Market? Please provide detai

### Calculating the cost of debt

Ying Import has several bond issues outstanding, each making semiannual interest payments. The bond are listed in the following table. If the corporate tax rate is 32%, what is the aftertax cost of Ying's Debt? BOND COUPON RATE RICE QUOTE MATURITY FACE VALUE

### Hedging using futures and options, working capital, after tax yield, borrowing rates, floats

Question 1 A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for \$300 an ounce, but the price is extremely volatile and could fall as low as \$280 or rise as high as \$320 in the next month. The company will bring 1,000 ounces to the market next month. a. What will be total reven

### Total interest expense

Kim Co issued \$80,000 of 4% bonds on June 1, 2007 at face value. The bonds pay interest semiannually on February 1 and August 1. The bonds are dated February 1, 2006, and a mature on February 1, 2010. The total interest expense related to these bonds for the year ended December 31, 2006 is I am stuck. The actual problem is si