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FINANCE 1. If you borrow $10,000 at $900 interes...




FINANCE 1. If you borrow $10,000 at $900 interest for one year, what is your effective interest cost for the following payment plans? a. Annual payment b. Semi-annual payment c. Quarterly payment d. Monthly payment 2. Use the statement below to solve Problems 3 and 4. Ohlin, Meade, and Assoc. plans to borrow $1 million for 12 months. Citibank gives the firm a stated rate of 10 percent interest. A. What is the effective rate of interest if the loan carries a simple 10 percent interest with a 20 percent compensating balance? B. What is the effective rate of interest if the above loan is an installment loan with 12 payments? 3. Kimberly Ford invested $10,000 10 years ago at 16 percent, compounded quarterly. How much has she accumulated? 4. Mr. Sullivan is borrowing $2 million to expand his business. The loan will be for ten years at 12% and will be repaid in equal quarterly installments. What will the quarterly payments be? 5. Samuel Johnson invested in gold U.S. coins ten years ago, paying $216.53 for one-ounce gold "double eagle" coins. He could sell these coins for $734 today. What was his annual rate of return for this investment? 6. You have an opportunity to buy a $1,000 bond which matures in 10 years. The bond pays $30 every six months. The current market interest rate is 8%. What is the most you would be willing to pay for this bond? 7. State Street Corp. will pay a dividend on common stock of $4.80 per share at the end of the year. The required return on common stock (Ke) is 13.2%. The firm has a constant growth rate of 7.2%. Compute the current price of the stock (Po). 8 . Madison Corporation has a $1000 par value bond outstanding paying annual interest of 7%. The bond matures in 20 years. If the present yield to maturity for this bond is 9%, calculate the current price of the bond using annual compounding. Use annual analysis. 9. The Nickelodeon Manufacturing Co. has a series of $1000 par value bonds outstanding. Each bond pays interest semi-annually and carries an annual coupon rate of 7%. Some bonds are due in three years while others are due in 10 years. If the required rate of return on bonds is 10%, what is the current price of: a) the bonds with 3 years to maturity? b) the bonds with 10 years to maturity? c) Explain the relationship between the number of years until a bond matures and its price. 10) Royal Petroleum Co. can buy a piece of equipment that is anticipated to provide a 9 percent return and can be financed at 6 percent with debt. Later in the year the firm turns down an opportunity to buy a new machine that would yield a 16 percent return but would cost 18 percent to finance through common equity. Assume debt and common equity each represent 50 percent of the firm?s capital structure. a. Compute the weighted average cost of capital. b. Which project(s) should be accepted?


Paper#5632 | Written in 18-Jul-2015

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