Twelve years ago, the Archer Corporation borrowed $6,850,000. Since then, cumulative inflation has been 80 percent (a compound rate of approximately 5 percent per year). a. When the firm repays the original $6,850,000 loan this year, what will be the effective purchasing power of the $6,850,000? (Hint: Divide the loan amount by one plus cumulative inflation.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Effective purchasing power b. To maintain the original $6,850,000 purchasing power, how much should the lender be repaid? (Hint: Multiply the loan amount by one plus cumulative inflation.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Loan repayment

Twelve years ago, the Archer Corporation borrowed $6,850,000. Since then, cumulative inflation has been 80 percent (a compound rate of approximately 5 percent per year). a. When the firm repays the original $6,850,000 loan this year, what will be the effective purchasing power of the $6,850,000? (Hint: Divide the loan amount by one plus cumulative inflation.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Effective purchasing power b. To maintain the original $6,850,000 purchasing power, how much should the lender be repaid? (Hint: Multiply the loan amount by one plus cumulative inflation.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Loan repayment

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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You just borrowed $1,000,000 using a 30 year home loan that's interest-only for the first 4 years, and principal and interest (P&I) for the remaining 26 years. The interest rate is 5.76% pa compounding monthly which is not expected to change. Which of the following statements is NOT correct? Select one: a. The effective monthly rate is 0.048 per month, given as a decimal. If the interest rate falls, the IO and P&I monthly payments will fall. b. If the IO term was one year shorter so the P&I term was one year longer, then the monthly payments over the P&I term would be lower. c. The IO loan's perpetuity factor' is 208.333333, while the P&I loan's annuity factor is 161.568937. d. The IO loan payments will be $4,800 per month, rounded to the nearest cent. e. The P&I loan payments will be $6,189.31 per month, rounded to the nearest cent.
9. Calculate the future value of money at the end of 8 years and 8 months if P5,200 is invested at an interest rate of 12% compounded quarterly and using simple interest for anytime less than a year interest period? Show the Cash Flow Diagram. State your reference period in the solution as reflected in the diagram. 10. A man borrowed P180,000 from a lending firm for 6 years at 9% compounded quarterly. At the end of 6 years, it renews the loan for the amount due plus P80,000 more for 6 years at 4 % compounded monthly. Determine the value of money at the end of the extended period? Show the Cash Flow Diagram. State your reference period in the solution as reflected in the diagram. Note: Use only two decimal places for the final answer and four decimal places for the solutions. Answer the problem with the given Format: Given, Required, Solution, Answer. Thank you!
A $150,000 loan is to be amortized over 6 years, with annual end-of-year payments. Which of these statements is CORRECT? The proportion of interest versus principal repayment would be the same for each of the 7 payments. The annual payments would be larger if the interest rate were lower. If the loan were amortized over 10 years rather than 6 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 6-year amortization plan. The proportion of each payment that represents interest as opposed to repayment of principal would be higher if the interest rate were lower. The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher.
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Bank of America is currently selling a security that will pay $300 one year from today, $400 2 years from today and $800 at some undisclosed time in the future. Find the time at which the $800 payment is made if the interest rate is 11% and BofA is selling the security for $1000. Round this number of years (from part a) to the nearest year. Assuming that the last payment is made at the end of the year you found (after rounding), find the future value of the security at that time (you can ignore the $1000 price of the security). Assume the interest rate is 11%.
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ou have discovered an investment opportunity that earns a 3% rate of interest compounded semiannually. What amount should you deposit today to have $7000 in three years? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.) $6400 $6370 $6406 $6402
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The financial manager obtains a quote from a third bank, Bank TMN, for interest on the loan at 10.5%, compounded bi-annually without calculating the effective annual rate (EAR for the loan from bank TMN, would you expect the EAR to be higher or lower than the EAR for the loan from bank DEF?
This morning, you borrowed $14,700 at an APR of 8.9 percent. If you repay the loan in one lump sum three years from today, how much will you have to repay? $15,514.47 $18,984.58 O $19,022.33 $15,324.60 O None of these answers are correct
Please answer the following showing detailed working: Bruce & Co. expects its EBIT to be $100,000 every year forever. The firm can borrow at 11 percent. Bruce currently has no debt, and its cost of equity is 18 percent. The tax rate is 31 percent. Given the above information; a) Complete the table given below for varying levels of debt below by using a mix of the given information and using your own computations. EBIT $100,000.00 Cost of debts 11% cost of equity when unlevered 18% Tax rate 31% Debts $0 $10,000.00 $20,000.00 $30,000.00 Cost of Equity when levered Equity D/E Vu VL WACC b) Plot the results from the table into the following two graphs:i) Value of the firm vis-à-vis- Total debtii) Cost of capital of the firm vis-à-vis D/E ratio.iii) Which MM propositions have you demonstrated?

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