Victory Markets, LLC ("VML") has a bank loan with a total principal of $3,800,000. The stated annual interest rate for the loan is 8.40%, and the loan is to be amortized with monthly payments over 6 years. VML wants the bank to change the provisions of the loan such that payments are made on an annual basis. What would be the economically equivalent annual interest rate (i.e., economically equivalent to 8.40% compounded monthly) for a loan with annual payments? 8.6632% 8.7311% 9.0023% 8.5987%

Victory Markets, LLC ("VML") has a bank loan with a total principal of $3,800,000. The stated annual interest rate for the loan is 8.40%, and the loan is to be amortized with monthly payments over 6 years. VML wants the bank to change the provisions of the loan such that payments are made on an annual basis. What would be the economically equivalent annual interest rate (i.e., economically equivalent to 8.40% compounded monthly) for a loan with annual payments? 8.6632% 8.7311% 9.0023% 8.5987%

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

See similar textbooks

Similar questions

Resty Corporation needs P400,000 additional financing. The company is considering the choice of financing with a bank or a factor. The bank loan carries a 20 percent interest rate on a discount basis with a required compensating balance of 16 percent. The factor charges a 3 percent commission on invoices purchased monthly. The interest rate associated with these invoices is 11 percent with interest deductible in advance. If a factor is used, there will be a monthly savings of P1,500 per month in credit department costs. Further, the expense of an uncollectible account of 2 percent on the factored receivables will not exist. (A) What amount of principal must the company borrow from the bank to receive P400,000 in proceeds? (B) What amount of accounts receivable must be factored to net the firm P400,000? choose the bullet with the correct answer (A) P325,000.00 and (B) P265,116.00 (A) P525,000.00 and (B) P465,116.00 (A) P525,000.00 and (B) P265,116.00 (A) P625,000.00 and (B)…
I want to know the whole process of calculation
PLEASE ANSWER ASAP. I REALLY NEED HELP
Automotive Accessories needs to borrow $135,000 for 6 months for renovations. It is considering two financing options: Bank Helping Hand offers an 8% annual rate subject to a 10% compensating balance. Bank Friendly Financer offers the funds as a discount loan with an annual rate of 8%. Automotive Accessories maintains no deposit balances in either bank, and repayment will be a single lump sum at maturity. a.What is the effective annual rate of interest on each loan? b.What can Automotive Accessories do to reduce the interest rates on these loans?
Ace Development Company is trying to structure a loan with the First National Bank. Ace would like to purchase a property for $3.25 million. The property is projected to produce a first year NOI of $125,000. The lender will allow only up to an 80 percent loan on the property and requires a DCR in the first year of at least 1.25. All loan payments are to be made monthly but will increase by 3.5 percent at the beginning of each year for five years. The contract rate of interest on the loan is 5.5 percent. The lender is willing to allow the loan to negatively amortize; however, the loan will mature at the end of the five-year period. Excel calculation would be appreciated! a. What will the balloon payment be at the end of the fifth year? b. If the property value does not change, what will the loan-to-value ratio be at the end of the five-year period?
Data Back-Up Systems has obtained a $29,000, 90-day bank loan at an annual interest rate of 15%, payable at maturity. (Note: Assume a 365-day year.) a. How much interest (in dollars) will the firm pay on the 90-day loan? b. Find the 90-day rate on the loan. c. Annualize your result in part b to find the effective annual rate for this loan, assuming that it is rolled over every 90 days throughout the year under the same terms and circumstances. Answers a. The amount of interest on the loan is $___. (Round to the nearest cent.) b. The effective 90-day rate is___%. (Round to two decimal places.) c. The effective annual rate is___%. (Round to two decimal places.)
Mr. Fernandez has applied for a revolving credit line of $ 9 million to assist in marketing a new product line. The terms of the loan will be as follows:(a) All the loans will be discount loans.(b) A fixed commitment fee of 0.2 percent will be charged.(c) The compensatory balance requirements will be 8 percent on the total credit line and 6 percent on the outstanding loans.(d) The bank will pay 2 percent interest on demand deposits.(e) The rate of interest to be charged will be the prime rate plus 3 percent.(f) The bank will use the "actual/360" accrual method to compute interest payments.(g) The credit line will be extended for a period of five years.The loan officer estimates that Mr. Fernandez will use about 67 percent of the credit line on average. If the prime rate is 10 percent and the required reserve rate on demand deposits is 16 percent, what is the effective cost to Mr. Fernandez?
A floating rate mortgage loan is made for $185,000 for a 30-year period at an initial rate of 12 percent interest. However, the borrower and lender have negotiated a monthly payment of $1,480. Required: a. What will be the loan balance at the end of year 1? b. If the interest rate increases to 13 percent at the end of year 2, how much is the payment plus negative amortization in year 2 and year 5 if the payment remains at $1,480?
SureWin Company owes an amount of debt to a bank and the bank proposed the following annual payments to pay off the debt. Year 0 (Today): 20,000 Year 1: 24,000; Year 2: 30,000; Year 3: 30,000; Year 4: 35,000; (1) If the appropriate interest rate that bank is charging is APR 6% annual compounding, what would be the amount to debt owed today? (2) If SureWin can negotiate with the bank to pay yearly equal instalments over 4 years starting from the end of year 1 with the same 6% annual interest rate, what would be the amount of yearly payment? (3) If the bank accepts SureWin proposal in (2), what would be the interest amount paid to the bank in the first year?
(Related to Checkpoint 18.2) (Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 16 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 7 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $110,000 for a period of 6 months, what is the annualized cost of the bank loan?
Red Lizard Construction just borrowed $53,600.00. The terms of the loan require the company to make equal monthly payments forever. The first monthly payment is due in 1 month. If the regular monthly loan payment is $600.00, then what is the EAR of the loan? A rate less than 10.44% or a rate greater than 14.72% A rate equal to or greater than 12.43% but less than 13.86% A rate equal to or greater than 10.44% but less than 11.06% A rate equal to or greater than 11.06% but less than 12.43% A rate equal to or greater than 13.86% but less than 14.72% 100
BNP Paribas has 800 depositors. Each depositor deposits $1,000 into the bank at t=0. BNP Paribas offers its depositors an 8% interest rate. BNP then uses the deposits to make 2 year simple loans at an interest rate of 8%. Depositors of BNP Paribas can either withdraw their deposits at t=1 or t=2. At t=1, BNP can sell its loans at the initial loan values, if needed. Assume that each depositor believes that there are a total of 300 depositors who will withdraw at t=1. How much of loan payments (in $) does each depositor expects the bank to receive at t=2? Round your answer to at least 2 decimal places.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS