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5. You want to make a car-loan to buy a new car and you have two choices. Bank X charges 4.25% compounded quarterly on its auto loans. Bank Z charges 4.225% compounded bi-weekly on its auto loans. Which bank would you go for a new loan? Why?

5. You want to make a car-loan to buy a new car and you have two choices. Bank X charges 4.25% compounded quarterly on its auto loans. Bank Z charges 4.225% compounded bi-weekly on its auto loans. Which bank would you go for a new loan? Why?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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5. You want to make a car-loan to buy a new car and you have two choices. Bank X charges 4.25% compounded quarterly on its auto loans. Bank Z charges 4.225% compounded bi-weekly on its auto loans. Which bank would you go for a new loan? Why? 6. A bond has a 4.6% coupon rate and a $1,000 face value. Coupon is semi-annually and the bond has 25 years to maturity. If investors require a 4% yield, what is the bond's value? 7. You have purchased a house for $450,000 and financed it with a loan to be repaid in monthly payments over a period of 30 years. What is the monthly payment if the APR is 6.5%? I 8. The ABC Corporation has just paid a dividend of $5.65 per share. The dividend of this company grows at a steady rate of 6 percent per year. a) What will the dividend be in seven years (D₂)? b) What is the (current) price of this stock if the required return is 15 percent? c) What is the price of this stock in year 4? 9. The next dividend payment by XYZ Co. will be $3.98 per share. The dividends are anticipated to maintain a 3 percent growth rate, forever. If XYZ stock currently sells for $230.4 per share, what is the required return?
Transcribed Image Text:5. You want to make a car-loan to buy a new car and you have two choices. Bank X charges 4.25% compounded quarterly on its auto loans. Bank Z charges 4.225% compounded bi-weekly on its auto loans. Which bank would you go for a new loan? Why? 6. A bond has a 4.6% coupon rate and a $1,000 face value. Coupon is semi-annually and the bond has 25 years to maturity. If investors require a 4% yield, what is the bond's value? 7. You have purchased a house for $450,000 and financed it with a loan to be repaid in monthly payments over a period of 30 years. What is the monthly payment if the APR is 6.5%? I 8. The ABC Corporation has just paid a dividend of $5.65 per share. The dividend of this company grows at a steady rate of 6 percent per year. a) What will the dividend be in seven years (D₂)? b) What is the (current) price of this stock if the required return is 15 percent? c) What is the price of this stock in year 4? 9. The next dividend payment by XYZ Co. will be $3.98 per share. The dividends are anticipated to maintain a 3 percent growth rate, forever. If XYZ stock currently sells for $230.4 per share, what is the required return?
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