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Interest Rates and the Cost of Debt

Interest rate risk and swaps for commercial banks

A commercial bank has $200 million of floating-rate loans yielding the T-bill rate plus 2 percent. These loans are financed with $200 million of fixed-rate deposits costing 9 percent. A savings bank has $200 million of mortgages with a fixed rate of 13 percent. They are financed with $200 million in CDs with a variable rate of T

Interest Rate and Market Value

The effect of an interest rate change on the market value of a Financial Institution's equity is a function of three things. What are they and how do the affect the equity value change?

Federal Reserve Board & interest rates

Assume that the Federal Reserve Board holds the interest rates "as is" or constant. Discuss the impact this constant interest rate would have on three years of the FI's profitability. *FFIC (ticket symbol) and this would be the only FI needed for this question. The first two worksheets on the provided spreadsheet are the

Implied Interest Rates on Leases

Elston Company has entered into two lease agreements. In each case the cash equivalent purchase price of the asset acquired is known and you wish to find the interest rate which is applicable to the lease payment. Instructions: Calculate the implied interest rate for the lease payments. Lease A Lease A covers office equ

Capital Structure: Firm's Net Income and Free Cash Flow

1 Bartling Energy Systems recently reported $9,250 of sales, $5,750 of operating costs other than depreciation, and $700 of depreciation. The company had no amortization charges, it had $3,200 of outstanding bonds that carry a 5% interest rate, and its federal-plus-state income tax rate was 35%. In order to sustain its opera

Calculate the lowest effective interest rate

Please help with the following problem. Last National Bank is offering you a loan at 10%; payments on the loan are to be made monthly. Credit Union is offering you a loan where payments are to be made semi-annually; the rate on the loan is also 10%. Local Bank down the street is also offering a loan at 10% where the payments

Specialization or Research Interest

1- Describe the specialization or research interest you wish to pursue if accepted. 2- What are your personal and professional goals? 3- What do you wish to gain from education at this university?

What is the yield on a six-year bond issued by Morgan Motors?

See attached files. 1) Morgan Motors has three-year bonds that currently yield 8.25%. The real risk-free rate (r*) is 2.50% and is expected to remain constant. Inflation is expected to be 3.0% per year for each of the next four years and 4.50% thereafter. The maturity risk premium (MRP) is determined from the formula: O.1(t

What is the yield on a seven-year, AA-rated bond issued by Pettigrew?

The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 5% per year for each of the next three years and 4% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.l(t - 1)%, where t is the security's maturity. The liquidity premium on all Pettigrew Power Co.'s b

Discuss taxability of insurance proceeds

Joe owes Willy $5,000 from an old gambling debt. Joe knows that there is no way he can repay the debt in the near future. He asks Joe if he will take a $25,000 life insurance policy that has a cash surrender value of $4,200 and release him from the debt. Willy agrees to take the insurance policy and cancels Joe's debt. Willy

Calculate values of 10 year Treasury Strips

1. Calculate the value of a 10-year Treasury STRIP if the Treasury 10-year spot rate is 6-1/8%. 2. Calculate the value of the Treasury STRIP in Problem #1 five years from now with the following expected Treasury spot rate curve: 6-month 6-7/8% 2-year 7-1/8% 5-year 7-3/8% 10-year 7-3/4%

Finance: Compound Interest Calculation

What is the formula to use to calculate compound interest on an HP 10B II calculator? If I have a bank account that has 500 dollars in it at 6.2% what will I have in my account in 5 years? Now assume the bank account earns compound interest but compounded quarterly (four times a year), assuming a 6.2% nominal int. rate,

Consolidation work and financial statements

Consolidation work and financial statements subsequent to acquisition Background and Information Palus Corporation acquired 90 percent of Stalus Company's voting stock on January 1, 2010. The price paid was $145,000. The excess of costs over book value was $10,000, which should be attributed to goodwill and must be amortiz

Calcdulate components of land cost, like kind exchange, interest, R&D expense

1. Simons Company purchased land to build a new factory. The following expenditures were made in conjunction with the land purchase: Purchase price of land $150,000 Real estate commission of 7% of the purchase price Land survey $5,000 Back Taxes $5,000 What is the value of the land? a) $160,000 b) $160,500 c

Calculationa of Bad Debt Expense

Using the percentage of receivables method for recording bad debts expense, estimated noncollectable are $25,000 at the end of the year. If the balance of the Allowance for Doubtful Accounts is $8,000 debit adjustment, what is the amount of bad debt expense for the period? Bad Debt Expense:___________________

Bootstrapping and Interest Rate Example Problem

Please I need help with this: One method used to obtain an estimate of the term structure of interest rates is called bootstrapping. Suppose you have a one-year zero coupon bond with a rate of r1 and a two-year bond with an annual coupon payment of C. To bootstrap the two-year rate, you can set up the following equation for t

Relationship between the variables in a loan amortization

What is the relationship between the variables in a loan amortization and the total interest cost? Consider the variables of interest rates, amount borrowed, down payment, prepayment, and term of loan in answering this question. Please provide an example.

The Fisher Effect and Inflation

Assume a nominal interest rate on one-year U.S. Treasury Bills of 3.80% and a real rate of interest of 2.00%. Using the Fisher Effect Equation, what is the exact expected rate of inflation in the U.S. over the next year? Show all your calculations. Since this equation shows, that An expert answers your question in deta

Higher Interest on Investments

Explain which of the two cases below yields a higher interest amount for an initial investment and why. 1. A simple interest rate of 13% paid at the end of one year 2. A monthly interest rate of 1% on the balance at the end of each month for one year.

Find the Equivalent Before-tax Interest Rate

The interest rate on municipal bonds is given and suppose an investor pays a tax rate of "x" on interest income. What is the minimum interest rate that the investor would accept on corporate debt of equal risk?

How Long to Double Your Money?

You deposit $1,000 in an account that pays 8% interest, compounded annually. How long will it take to double your money? Now I already know the answer is 9 years by using the rule of 72 however I am trying to find a formula in excel that proves this answer to be correct and I am coming up with nothing. I need help with the f

Mortgage Rates

If mortgage rates raise from 5% to 10%, but the expected rate of increase in house prices rises from 2% to 9%, are people more or less likely to buy houses? ( Show your work to receive full credits).

Calculating the Effective Interest Rate..

William Miklo is opening a new business and the bank will not give him a loan without a 20% compensating balance account. He needs $50,000 at 15% interest for one year and they want their interest in advance. What is the real interest rate they are charging him?

Label Arithmetic Sequence or a Geometric Sequence

A person deposited $500.00 in a savings account that pays 5% annual interest that is compounded yearly. At the end of 10 years how much money will be in the savings account? Please show years 1-10 thank you, and how you came up with this answer.

Estimate interest rates, inflation adjustment, pure interest rate

Part a) You have been assigned to estimate the interest rates that your company may have to pay when borrowing money in the near future. The following information is available. kPR = 2% MR = 0.1% for a 1 year loan increasing by 0.1% for each additional year LR = 0.05% for a 1 year loan increasing by 0.05% for each additio

Collateralized Debt Obligations

OXFORD INVESTMENT GROUP Delta Bank and Trust was heavily involved in making home loans during the housing boom. Initially Delta held the loans until maturity. However, as the boom gradually increased over the past two decades Delta packaged the loans and sold them to investors. At first they held the loans for 5-7 years be