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# Interest Rates and the Cost of Debt

### Determining Amount to Deposit to get Desired Returns

If I wanted to set up a trust earning 9% compounded semi-annually so that I could withdraw \$10,000 every six months, begining six months from now, for 6 years. How would I determine the amount to deposit now?

### What cuased the drop in money market interest rates after the Stock Market Crashes of 1987, 1989 and after September 11th

In the stock market crashes of 1987, 1989, and shortly after "September 11th," money market yields dropped. What caused this drop in money market interest rates? Discuss. [Be careful -- the question DOES NOT deal with why the markets crashed.] I am unable to locate data referencing the specific problem of why money market i

Given the following information, leverage will add how much value to the unlevered firm per dollar of debt? Corporate tax rate: 34% Personal tax rate on income from bonds: 50% Personal tax rate on income from stocks: 10% a. \$-0.050 b. \$-0.188 c. \$0.188 d. \$0.633 e. None of the above.

### Continuously Compounding Interest : Goal Problem

The parents of a newborn child want to have \$60,000 for the child's college education 17 years from now. At what rate of interest compounded continuously (to three decimal places) must a grandparent's gift of \$20,000 be invested now to achieve this goal?

### Operating & Financial leverage: break even analysis, varied industries, risk, interest rate

I need your help on how to discuss the various uses for break-even analysis. What factors would cause a difference in the use of financial leverage for a utility company and an automobile company? How do I explain how the break-even point and operating leverage are affected by the choice of manufacturing facilities (labo

### Interest rate

Assume that the 180-day interest rate is 1% and 3%, respectively in the U.S. and Japan. Also, the spot rate and 180-day forward rate are equivalent at 120 yen per one U.S. dollar (\$.008333 per one Japanese yen). As a trader for a commercial bank with \$1,000,000 to invest, could earn a risk-free return by engaging in covered inte

### Marriott

Responses from MBA and finance majors are preferred. Please include all your financial analysis and numerical results. Note that the actual case is only 8 pages. The remaining pages are supplementary information. Using the attached case study answer the following questions a. Should Marriott move forward with Project C

### What is the value of bonds and the interest rate fluctuations for the Garraty Company?

The Garraty Company has two bond issues outstanding. Both bonds pay \$100 annual interest plus \$1,000 at maturity. Bond L has a maturity of 15 years, and Bond S a maturity of 1 year. a. What will be the value of each of these bonds when the going rate of interest is (1) 5 percent, (2) 8 percent, and (3) 12 percent? Assume that

### Interest rate is discussed.

The interest rate on 1-year Treasury securities is 5 percent. The interest rate on 2-year Treasury securities is 6 percent. The expectations theory is assumed to be correct. Which of the following statements is most correct? a.The maturity risk premium is positive. b.The market expects that 1-year rates will be 5.5 percen

### Continuously Compounding Interest

I am in Pre-Calc and we are covering the number e and the function e^x. I do not understand how to compound continuously. Please explain how to do this. Here is my problem: Suppose you invest \$1.00 at 6% annual interest. Calculate the amount that you would have after one year if the interest is compounded continuously.

### Monthly interest rate on a car loan

You took out a car loan. You must pay \$500 a month for 48 months. You calculate that the FV of the loan is \$33,034.18. What is your monthly interest rate? a)1.0% b)2.5% c)3.1% d)1.3% e)1.90% f)2.9% g)2.1% h)0.94% i)0.83% j)2.13%

### Interest rate levels

Explain how a decrease in the general level of interest rates affects the valuation of a firm's bonds. To prove this statement solve and answer the following: I have \$1,000 bind paying 12 percent interest that has 10 years to maturity. If the current interest rates are 10 percent, will a prudent investor pay me more than \$1

The real risk-free rate, k*, is 2.5%. Inflation is expected to average 2.8 perecent a year for the next 4 years, after which time inflation is expected to average 3.75% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 8.3%. Assume that the liquidity premium on the corporate bond

### Interest Rates

Due to a recession, the inflation rate expected for the coming year is only 3 perecent. However, the inflation rate in Year 2 and thereafter is expected to be constant t some level above 3%. Assume that the real risk-free rate is k*= 2% for all maturities and that the expectations theory explains the yield curve,so there are n

### Expected Rate of Interest and inflation

Suppose the annual yield on a 2-year Treasury bond is 4.5%, while that on a 1-year bond is 3%. k* (=real risk-free rate of interest) is 1 percent, and the maturity risk premium is zero. a. Using the expectations theory, forecast the interest rate on a 1-year bond during the second year. (Hint: Under the expectations theory, t

### Heister, Magic Pumpkin, King: break even, effective interest rate, open branch office

1. The Heister Corporation produces class rings for Whatsamadda U. These rings sell for \$75.00 each, and cost \$35.00 each to produce. Heister has fixed costs of \$50,000. a. Calculate Heister's break-even point. b. How much profit (loss) will Heister have if it sells 1,000 rings? c. How much profit (loss) will Heister ha

### A corporation loaned money to an employee but never charged interest or attempted to collect the money. The IRS could reclassify the loan as wages under

A corporation loaned money to an employee but never charged interest or attempted to collect the money. The IRS could reclassify the loan as wages under a. step transaction doctrine. b. substance over form doctrine. c. assignment of income doctrine

### Mortgage Loan Payments

Jim Thomas borrows \$70,000 toward the purchase of a home at 12 percent interest. His mortgage is for 30 years. a. How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation. We will get a reasonably accurate answer.) b. H

### Frequency of compounding

If, as an investor, you had a choice of daily, monthly, or quarterly compounding, which would you choose? Why?

### Interest rates & exchange rates

Suppose that the riskfree interest rates in Australia and Japan are 6% p.a. and 2% p.a., respectively. The AUD/JPY spot rate is 70.00 and the AUD/JPY oneyear forward rate is 68.00. Based on this situation do any arbitrage opportunities exist? If so, explain what these arbitrage opportunities are and outline the steps you would t

### Interest Compounding

An alumnus wants to set up a trust (which earns 9% interest compounded semi-annually) to provide a grant to his alma mater of \$10,000 every six months, beginning six months from now, for six years. How much should be deposited in the trust?

### Compensating Balances

Compensating Balances. A bank loan has a quoted annual rate of 6 percent. However, the borrower must maintain a balance of 25 percent of the amount of the loan, and the balance does not earn any interest. a. What is the effective rate of interest if the loan is for 1 year and is paid off in one payment at the end of the yea

### Trade credit -implicit interest rate charged to customers that pass up the cash discount

Trade Credit Rates - A firm currently offers terms of sale of 3/20, net 40. What effect will the following actions have on the implicit interest rate charged to customers that pass up the cash discount? State whether the implicit interest rate will increase or decrease. a) the terms are changed to 4/20, net 40 b) the terms

### After Tax Cost of Debt for Goodsmith Charitable Foundation

3. The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 8 percent to help finance a new playground facility in Los Angeles. This year the cost of debt is 20 percent higher; that is, firms that paid 10 percent for debt last year will be paying 12 percent this year. a. If the Goodsmith Charitable F

### Question about mortgage loan payments

Jim Thomas borrows \$70,000 toward the purchase of a home at 12 percent interest. His mortgage is for 30 years. a. How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation. We will get a reasonably accurate answer.) b. How m

### Federal income tax exemption - escape from progressivity for the rich??

Why is it argued that the federal income tax exemption of interest on state-local debt is an escape from progressivity for the rich? Please explain the arguements for and against this critisism.

### Federal income tax exemption - is it or is it not a an inefficient subsidy

Is the federal income tax exemption of interest on state-local debt an inefficient subsidy in terms of "transfer efficiency"? What are the arguements for and against it being an ineffiecient subsidy in terms of "transfer efficiency"? thank you.

### Federal income tax exemption claritification - does it mask interest rates etc

I read that some argue that the federal income tax exemption of interest on state-local debt is that it masks interest rate costs - to all sectors that borrow - of increased volume of state-local borrowing? Please explain the arguements for and an against this theory - I dont understand. thanks.

### Finding the market share, return on assets, & retained earnings

4-11. You are given the following information: Stockholders' equity = \$1,250; price/earnings ratio = 5; shares outstanding = 25; market/book ratio = 1.5. Calculate the market price of a share of the company's stock. a) \$ 33.33 b) \$ 75.00 c) \$ 10.00 d)\$166.67 e) \$133.32 4-12. A firm has a profit margin of 15 perce

### Corporate Finance

16-1 Schweser Satellites Inc. produces satellite earth stations that sell for \$100,000 each. The firm's fixed costs, F, are \$2 million; 50 earth stations are produced and sold each year; profits total \$500,000; and the firm's assets (all equity financed) are \$5 million. The firm estimates that it can change its production proc