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# Interest Rates and the Cost of Debt

### Interest and total cost

Problem: You buy a car with a down payment of \$300 and payments of \$200 per month for 3 years. If the interest rate is 12% compounded monthly what is the total cost of the car? a. \$5532.14 b. \$6574.20 c. \$6321.50 d. \$8615.38 e. None of the above

### Interest

Problem: Bill needs \$8000 to buy a new car in five years. How much should be deposited at the end of every quarter into an account that earns 8% interest compounded quarterly? a. \$329.25 b. \$345.97 c. \$666.33 d. \$ 489.25 e. None of the above

### Valuation of firm

Introduction: Company X currently has no debt.The Market Value of its 15 million outstanding shares is 25 Euros.The newly hired Financial manager is convinced that this Zero Debt capital structure is not optimal; Debt financing increases the global market value of the company's securities by the present value of the corporate

### Growing Interest Rate Specified

How long will it take for \$400 to grow to \$1000 at the interest rates specified? a. 4% b. 8% c. 16% Please show all work.

### Interest Rates: Given Present/Future Value and Time Period

Find the interest rate implied by the following combination of present and future values: Present Value=400, Future Value=684, Years=11 Present Value=183, Future Value=249, Years=4 Present Value=300, Future Value=300, Years=7 Please show work. Thanks!

### Amortizing loan with a fixed interest rate

Please help with this problem. Also, please list formula used for solution. Amortizing Loan. Consider a 4-year amortizing loan. You borrow \$1,000 initially, and repay it in four equal annual year-end payments. a. If the interest rate is 8 percent, show that the annual payment is \$301.92. Thank you.

### Interest rate parity; Currency of invoice and currency of expenses

1) Assume that interest rate parity holds, and the euro's interest rate is 9% while the U.S. interest rate is 12%. Then the euro's interest rate increases to 11% while the U.S. interest rate remains the same. As a result of the increase in the interest rate on euros, the euro's forward _______ will _______ in order to maintain i

### Translation exposure; interest rate parity

A perfect hedge (full coverage) on translation exposure can usually be achieved when: using the money market hedge. using the forward hedge. using the futures hedge. none of the above, since a perfect hedge is nearly impossible. Assume that the U.S. interest rate is 10%, while the British interest rate i

### Yield and interest rates

Which of the following is most correct? a. The yield on a 2 year corporate bond will always exceed the yield on a 2 year treasury bond. b. The yield on a 3 year corporate bond will always exceed the yield on a 2 year corporate bond. c. The yield on a 3 year treasury bond will always exceed the year on a 2 year treasury bond

### 18-8. Inflation and Exchange Rates

18-8. Inflation and Exchange Rates. Suppose the current exchange rate for the Russian ruble is ruble 29.15. The expected exchange rate in three years is ruble 31.02. What is the difference in the annual inflation rates for the United States and Russia over this period? Assume that the anticipated rate is constant for both cou

### Internal Rate and Arbitrage

18-7. Interest Rates and Arbitrage. The treasurer of a major U.S. firm has \$30 million to invest for three months. The annual interest rate in the United States is .30 percent per month. The interest rate in Great Britain is .45 percent per month. The spot exchange rate is £.59, and the three-month forward rate is £.61. Ign

### Investment: discount rate; semiannual compounding; annual interest etc...

1. What is the present value of \$800 received 5 years from today. Use a discount rate of 3% and semiannual compounding. Choose and place on the answer sheet the best answer from those provided below and attach your supporting work. 2. If you have \$1000 today, invest it in an investment that pays 10% interest quarterly for 10

### Multiple choice questions in financial management: estimated selling price of stock, monthly loan payment, financial statements, appropriate rate of interest to charge under the expectations theory, bond prices, inventory turn ratio, minimum required rate of return, stock's beta coefficient

1) For a share of stock, the projected selling price one year from now (P1) is \$125.00, the projected dividend payment one year from now (Dl) is \$4.25, and the investors' required rate of re tu m for the stock is 14%. The estimated selling price of this stock is: a. \$109.65. b. \$120.75. c. \$113.38. d. none of the above

### Compound interest

If \$2500 is invested in a long-term trust fund with an interest rate of 5% compounded continuously, what is the amount of money in the account after 25 years?

### Simple vs Compound Interest

Simple Interest versus Compound Interest. First Mark Bank pays 6 percent simple interest on its savings account balances, whereas First Mullineaux Bank pays 6 percent interest compounded annually. If you made a \$5,000 deposit in each bank, how much more money would you earn from your First Mullineaux Bank account at the end

### Simple Interest versus Compound Interest.

Simple Interest versus Compound Interest. First Mark Bank pays 6 percent simple interest on its savings account balances, whereas First Mullineaux Bank pays 6 percent interest compounded annually. If you made a \$5,000 deposit in each bank, how much more money would you earn from your First Mullineaux Bank account at the end of

### Calculating APR

Calculating APR. Buckeye Credit Corp. wants to earn an effective annual return on its consumer loans of 16 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers? Explain why this rate is misleading to an uninformed borrower.

### Global Risk Management - Hedge Value & Arbitrage Opportunity Problem

Please work problems; formula and showing how to solve problem are most important (so I can see how to solve similar problems). Thanks American Airlines is trying to decide how to go about hedging â?¬70 million in ticket sales receivable in 180 days. Suppose it faces the following exchange and interest rates. Spot rate

### Financing

Nancy Tai has recently opened a revolving charge account with MasterCard. Her credit limit is \$1000, but she has not charged that much since opening the account. Nancy hasn't had the time to review her monthly statements as promptly as she should, but over the upcoming weekend, she plans to catch up on her work. In reviewing

### Future Value/Present Value and Annuity Tables

1. You wish to retire in 18 years, at which time you want to have accumulated enough money to receive an annuity of \$14,000 a year for 20 years of retirement. During the period before retirement , you can earn 11% annually and after retirement you can earn 8% annually. What annual contributions will allow you to receive \$14,

### Future Value / Present Value and Annuity Tables

1. John started a paper route 1/1/95. Every three months, he deposit \$500.00 in his bank account. The account earns 4% annually but is compounded quarterly. On 12/31/98, he used the entire balance in his account to invest in a contract that pays 9% annually. How much will he have on 12/31/01? 2. Joe invests \$50,000 in a pro

### Sinking Fund

\$6000 is borrowed at 10% compounded semi-annually. The amount is to be paid back in 5 years. If a sinking fund is established to repay the loans and interest in 5 years, and the fund earns 8% compounded quarterly, how much will have to be paid into the fund every 3 months?

### Compound Interest: Size of Withdrawals

A man has \$50,000 invested at 12% compounded quarterly at the time he retires. If he wishes to withdraw money every 3 months, for the next 7 years, what will be the size of his withdrawals?

### Total Volume/Day, Open Interest for unleaded gasoline contracts

The table below (see attachment) reports daily transactions for the March 2006 unleaded gasoline contract. For example, "Rob(3)" listed under the "Short" column means that on that particular day Rob shorted 3 March 2006 unleaded gasoline contracts. Assuming the traders listed below are the only traders participating in this

### Cost of debt (Borrowing capital); explain phases of debenture issuing cost

What is the Cost of Borrowing Capital? Explain the different phases of Debenture issuing cost for the folliwng examples? 1) A company wishes to issue 1000, 7% debentures of \$100 each for which the company had to pay the following expenses: (i) under writing commission 1.5% (ii) Brokerage .50% (iii) Printing

### Goal Seeking

Instruction: ** Review the attached document ** - Recreate the last spreadsheet shown in the attached document. - The formulas for the cells E10, E11, and E13 are shown in the last spreadsheet in the attached document. Note: - The PMT() function displays the Monthly Loan Payment amount as a negative value, not as a

### Compounded Interest

1. Find the present value of \$2000 to be received 2 years from now discounted at 3% semiannually. 2. How many years will it take to triple your money in an investment that pays 7% interest compounded quarterly? 3. What is the monthly payment on a \$150,000, 30-year mortgage at a 6.5% interest rate? 4. If you borrow \$200

### Relation between interest rate and future value factor

As interest rate increases for anu given period, the future value interest factor will _____ decrease, increase, remain unchanged, or move toward 1 please advise answer & show why - thanks so much!

### Value of Bonds

XYZ Company is planning to issue some bonds. The bonds,with a \$5000.00 par value and the coupon rate of 12%,will mature in 10 years. The interest will be paid semiannually. a) What would be the value of each bond when issued if the marlet interest rate is 12% b) Suppose two years later from the original issuing date, the g

### Uncertainty of future interest rates

To compenstae for uncertainty of future interest rates and the fact that the longer the term of a loan the higher the probability that the borrower will default, the lender typically _______ charges a higher interest rate on long-term loans, reserves the right to change the terms of the loan at any time, includes excessive