Axle India Ltd's financial manager has forecast a Rs.1 million cash deficit for thenext quarter. However, there is only a 50% chance this deficit will actuallyoccur. The treasurer estimates that there is a 20% probability the company willhave no deficit at all and a 30% probability that it will actually need Rs.2 millionin short-term financing. The company can either take out a 90-day unsecuredloan at 1% per month or establish a line of credit, costing 1% per month on theamount borrowed plus a commitment fee of Rs.20, 000. Both alternatives alsorequired a 20% compensating balance for outstanding loans. If excess cash canbe reinvested at 9% which source of financing gives the lower expected cost?

amount borrowed plus a commitment fee of Rs.20, 000. Both alternatives also required a 20% compensating balance for outstanding loans. If excess cash can be reinvested at 9% which source of financing gives the lower expected cost?

amount borrowed plus a commitment fee of Rs.20, 000. Both alternatives also required a 20% compensating balance for outstanding loans. If excess cash can be reinvested at 9% which source of financing gives the lower expected cost?

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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3. Answer the following questions based on the information below Current credit policy(n/a) Proposed credit policy (net 30) Price (RO) 15 17 Variable cost per unit (RO) 8. 12 Quantity 200,000 300,000 Monthly rate 1.25% a. What is the incremental cash flows from switching credit policies? b. What is the cost of switching? c. What is your recommendation? d. We assume that the variable cost and the price per unit remain stable as in the current policy, calculate and interpret the break-even sales increase. e. What is the break-even probability of default if we assume one time scale? Interpret.
Consider a $5,000, 6%, 180-day interest-bearing note and a non-interest- bearing note for the same amount and time period with a bank discount of 6%. From the borrower’s point of view, which is the better loan and why?
Find the following. (Round your answers to the nearest cent.) FinanceCharge Number ofPayments Frequency Amount Number ofPayments Left $9.10 12 Monthly $15 5 (b) the amount needed to pay off the loan
You are taking out a new loan of $140,000 that includes an origination fee of 4.5%. How much money does the origination fee cost you?
Display graphically cash flows (calculate repayment of the principal amount and interest for each period) on a differentiated-payment loan, if the principal amount is 2,000, maturity is 3 years, interest rate is 11% per year, and frequency of payments is semiannual.
How to calculate the missing values?
A consumer loan requires monthly payments, in equal amounts, $700.00. The next payment is due in one month. Assume that the appropriate discount rate is 21% (APR). What is the effective annual rate? (show them in excel spreadsheet, write your own present value formulas, don't use Excel built-in functions.
You want to buy a $130,000 home. You plan to pay 5% as a down payment, and take out a 30 year loan at 6.25% interest for the rest. The bank will charge 3 points on the amount financed.a) What is the amount of the down payment?b) How much is the loan amount going to be?c) What will be the amount charged for 3 points?d) Find the amount of the monthly payment.
Suppose you inherit $100,000 at age 25 and immediately invested in a growth fund who’s annual rate of return average is 13%. Five years later, you transfer all proceeds from the scrubs fun into a long-term IRA that pays an average annual rate of 8%. Immediately you start making additional contributions of $7000 per year to the same IRA. Assuming continuous interest, steady interest rates, and a perfect record of making annualcontributions, how much is this IRA worth when you reach the age of 65? The formula that will need to be used is A = P e^r*t + D/r (e^r*t - 1). Hint: use the continuous interest formula to find the accumulated amount for the first five years, which is then the annual investment, P, into the IRA.
Which of the following statements is most correct? The first payment under a 3-year, annual payment, amortized loan for $1,000 will include a smaller percentage (or fraction) of interest if the interest rate is 5 percent than if it is 10 percent. If you are lending money, then, based on effective interest rates, you should prefer to lend at a 10 percent nominal, or quoted, rate but with semiannual payments, rather than at a 10.1 percent nominal rate with annual payments. However, as a borrower you should prefer the annual payment loan. The value of a perpetuity (say for $100 per year) will approach infinity as the interest rate used to evaluate the perpetuity approaches zero. Statements a, b, and c are all true. Statements b and c are true.
Please provide explanation.
A bank makes a loan of $1,000,000 at a rate of 6% p.a. It also requires a compensating balance of 5%. What is the effective cost to the borrower?

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