20. PUTTING UP COLLATERAL Joni Perez needs to borrow $20,000 to open a welding shop. but the bank will not lend her the money. Joni's uncle agrees to put up collateral for the loan with a $20,000, 4-year certificate of deposit paying 4% compounded daily. This means that the bank will take all or part of his deposit if Perez should fail to loan. Find (a) the compound amount earned by her uncle and (b) the interest earned by her uncle. repay the

20. PUTTING UP COLLATERAL Joni Perez needs to borrow $20,000 to open a welding shop. but the bank will not lend her the money. Joni's uncle agrees to put up collateral for the loan with a $20,000, 4-year certificate of deposit paying 4% compounded daily. This means that the bank will take all or part of his deposit if Perez should fail to loan. Find (a) the compound amount earned by her uncle and (b) the interest earned by her uncle. repay the

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Discount loan (interest and principal at maturity). Chuck Ponzi has talked an elderly woman into loaning him $10,000 for a new business venture. She has, however, successfully passed a finance class and requires Chuck to sign a binding contract on repayment of the $10,000 with an annual interest rate of 8% over the next 10 years. Determine the cash flow to the woman under a discount loan, in which Ponzi will have a lump-sum payment at the end of the contract. What is the amount of payment that the woman will receive at the end of years 1 through 9? $nothing (Round to the nearest cent.) What is the amount of payment that the woman will receive at the end of the loan in year 10? $nothing (Round to the nearest cent.)
Would Qualifying an Indorsement Be Ethical? Suppose you have taken a promissory note for $3,500 payable in 12 months with interest at 10 percent as payment for some carpentry work you did for a friend. You have some reason to believe the maker of the note is in financial difficulty and may not be able to pay the note when it is due. You discuss with an elderly neighbor the possibility of her buying the note from you as an investment, and she agrees to buy it from you for $3,000. Would it be ethical for you to indorse the note with a qualified indorsement ("without recourse")?
Claire needs to borrow $7000 to pay for NHL season tickets for her family. She borrows from a credit union with 48 monthly payments of $187.91 each. Suppose the credit union uses the rule of 78 and imposes an early payoff penalty of 1% of the original finance charge per month of early payment. For example, if Claire pays the loan off 9 months early, then the penalty will be 9% of the original finance charge. Find the least value of k that would result in any savings for Claire. The least value of k that would result in any savings for Claire is.
6. Jake and Archie are looking for places to live. Jake decides to rent a house for $1400 . Archie buys a house for $189 900, with a down payment of 10%. The bank has offered Archie a 20-year mortgage for the remainder of the cost, at 4% compounded semi-annually, with payments every two weeks. Jake and Archie both move after 5 years. Archie's house has depreciated by 2% per year. Compare Jake's and Archie's housing costs. per month.
Melvin Indecision has difficulty deciding whether to put his savings in Mystic Bank or Four Rivers Bank. Mystic offers 10% interest compounded semiannually. Four Rivers offers 8% interest compounded quarterly. Melvin has $10,000 to invest. He expects to withdraw the money at the end of 4 years.Calculate interest for each bank and identify which bank gives Melvin the better deal? (Use the Table provided.) (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)
4. Lily starts her own bank, called BOL. As owner, Lily puts in $100 of her own money. BOL then borrows $300 in a long-term loan from Lily's roommate, accepts $850 in demand deposits from her neighbors, buys $400 of corporate bonds, lends $600 to local businesses to finance new investments, and keeps the remainder of the bank's assets as reserves at the Fed. a. Fill in blanks in the balanced sheet of BOL: Assets Reserves $ Loans $ Securities $ Total $ Liabilities and Owners' equity Deposits $ Debt $ Capital (Owners' equity) $ Total $ b. Calculate BOL's leverage ratio. Interpret the ratio. c. Suppose the bank's asset value increases by 8%, calculate for the percentage increase in the capital value. d. Suppose the bank's asset value decreases by 8%, calculate for the percentage decrease in the capital value.
Zebulon wants to borrow money. He writes a note that guarantees that 360 days from now he will give an amount of $1818.00 to whoever brings back the note to him. Yolanda wants to invest. She ourchases the note from Zebulon. She pays $1800. After 30 days, Yolanda sells the notes to Walter for $1679.45. Walter keeps the note until maturity. (a) What is the simple interest rate earned by Yolanda? Note that negative rates may occur. When this happens it means that Yolanda lost money :( (b) What is the simple interest rate earned by Walter? (c) What is the simple interest rate at which Zebulon borrowed?
A person you trust foresees the need for a loan and suggests that you loan them $2,000 at the end of year 1, $1,000 at the end of year 2, nothing in year 3, and then they will pay you $1,000 in year 4, $2,000 in year 5, and $3,000 in year 6. They note that you will pay out a total of $3,000 to them, and then they will pay back $6,000 to you, allowing you to “double your money.” If you are able to make 12% per year on your investments, determine the present worth of this series of cash flows.
Discount loan (interest and principal at maturity). Chuck Ponzi has talked an elderly woman into loaning him $20,000 for a new business venture. She has, however, successfully passed a finance class and requires Chuck to sign a binding contract on repayment of the $20,000 with an annual interest rate of 11% over the next 5 years. Determine the cash flow to the woman under a discount loan, in which Ponzi will have a lump-sum payment at the end of the contract. What is the amount of payment that the woman will receive at the end of years 1 through 4? $ (Round to the nearest cent.)
10) Vanessa wants to withdraw $8,000 each year from July 1, 2025 through July 1, 2029. The investment fund earns interest at a rate of 5%. In order to make these withdrawals, Vanessa will invest an annuity on July 1, 2021 through July 1, 2024. Calculate the annuity Vanessa needs to invest each year. Yellow Company purchases a truck on January 1, 2021. According to the contract Yellow will not make any payments in 2021, 2022 and 2023. Yellow is to make an annuity payment of $5,000 starting December 31, 2024 through December 31, 2028. Calculate the cost of the truck. 11) Stella has $3,000,000 in her investment fund. She wishes to withdraw $338,868 12) at the end of each of the next 13 years. What interest rate must she earn in order to accomplish her goal. A note receivable that is due in 15 months from now is always classified as a 13) long-term asset. (True/False) 14) A long-term note receivable should be disclosed in Other Assets in a classified balance sheet. (True/False)
3.51 Jennifer Lee, an engineering major in her junior year, has received in the mail two guaranteed-line-of-credit applications from two different banks. Each bank offers a different annual fee and finance charge. Jennifer expects her average monthly balance after payment to be $500 and plans to keep the card she chooses for only 24 months. (After graduation, she will apply for a new card.) Jennifer's interest rate (on her savings account) is 8% compounded daily. Terms Annual fee Finance charge Bank A Bank B $25 Free 1.65% monthly interest rate 20% annual percentage rate (a) Compute the effective annual interest rate for each card. (b) Which bank's credit card should Jennifer choose?
Suppose that you need $30,000 for your last year of college. You could go to a private lending institution and apply for a signature student loan; rates range from 7% to 14%. However, your Aunt Sally is willing to loan you the money from her retirement savings, with no repayment until after graduation. All she asks is that in the meantime you pay her each month the amount of interest that she would otherwise get on her savings (since she needs that to live on), which is 4%.What is your monthly payment to her, and how much interest will you pay her over the year (9 months)?(Fill in the blanks below and give your answers as whole numbers.)The amount of interest per month you would pay Aunt Sally is $__(1)__ .The total interest you will pay her over the year (9 months)is $__(2)__ .

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