Corporate Finance: A Focused Approach (mindtap Course List)
7th Edition
ISBN: 9781337909747
Author: Michael C. Ehrhardt, Eugene F. Brigham
Publisher: South-Western College Pub
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Chapter 4, Problem 15P
a.
Summary Introduction
To Determine: The interest rate if $700 borrowed.
b.
Summary Introduction
To Determine: The interest rate if $749 is paid.
c.
Summary Introduction
To Determine: The interest rate if $85,000 is borrowed.
d.
Summary Introduction
To Determine: The interest rate if $9,000 is borrowed.
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Find the interest rates earned on each of the following:
A. You borrow $700 and promise to pay back $749 at the end of 1 year
B. You lend $700 and the borrower promises to pay you back $749 at the end of 1 year
C. You borrow $85,000 and promise to pay back $201,229 at the end of 10 years
D. You borrow $9,000 and promise to make payments of $2,684.80 at the end of each year for 5 years
Find the interest rates earned on each of the following. Round your answers to the nearest whole number.
a. You borrow $680 and promise to pay bạck $782 at the end of 1 year.
%
b. You lend $680, and the borrower promises to pay you $782 at the end of 1 year.
c. You borrow $82,000 and promise to pay back $116,712 at the end of 9 years.
%
d. You borrow $20,000 and promise to make payments of $6,687.60 at the end of each year for 5 years.
%
Find the interest rates earned on each of the following. Round your answers to the nearest whole number.
a. You borrow $660 and promise to pay back $759 at the end of 1 year.
%
b. You lend $660 and the borrower promises to pay you $759 at the end of 1 year.
%
c. You borrow $69,000 and promise to pay back $109,495 at the end of 6 years.
%
d. You borrow $11,000 and promise to make payments of $3,359.50 at the end of each year for 5 years.
%
Chapter 4 Solutions
Corporate Finance: A Focused Approach (mindtap Course List)
Ch. 4 - Prob. 1QCh. 4 - Prob. 2QCh. 4 - An annuity is defined as a series of payments of a...Ch. 4 - If a firms earnings per share grew from 1 to 2...Ch. 4 - Prob. 5QCh. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Prob. 5P
Ch. 4 - Prob. 6PCh. 4 - An investment will pay 100 at the end of each of...Ch. 4 - You want to buy a car, and a local bank will lend...Ch. 4 - Find the following values, using the equations,...Ch. 4 - Prob. 10PCh. 4 - Prob. 11PCh. 4 - Find the future value of the following annuities....Ch. 4 - Prob. 13PCh. 4 - Prob. 14PCh. 4 - Prob. 15PCh. 4 - Prob. 16PCh. 4 - Prob. 17PCh. 4 - Prob. 18PCh. 4 - Universal Bank pays 7% interest, compounded...Ch. 4 - Prob. 20PCh. 4 - Prob. 21PCh. 4 - Prob. 22PCh. 4 - A mortgage company offers to lend you 85,000; the...Ch. 4 - Prob. 24PCh. 4 - Prob. 25PCh. 4 - Prob. 26PCh. 4 - Prob. 27PCh. 4 - Prob. 28PCh. 4 - Prob. 29PCh. 4 - Your company is planning to borrow 1 million on a...Ch. 4 - It is now January 1. You plan to make a total of 5...Ch. 4 - Prob. 32PCh. 4 - Prob. 33PCh. 4 - You want to accumulate 1 million by your...Ch. 4 - Prob. 1MCCh. 4 - Prob. 2MCCh. 4 - Prob. 3MCCh. 4 - Prob. 4MCCh. 4 - Prob. 5MCCh. 4 - Prob. 6MCCh. 4 - Prob. 7MCCh. 4 - Prob. 8MCCh. 4 - Prob. 9MCCh. 4 - Prob. 10MCCh. 4 - Prob. 11MCCh. 4 - Prob. 12MCCh. 4 - Prob. 13MC
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- Use the tables in Appendix B to answer the following questions. A. If you would like to accumulate $2,500 over the next 4 years when the interest rate is 15%, how much do you need to deposit in the account? B. If you place $6,200 in a savings account, how much will you have at the end of 7 years with a 12% interest rate? C. You invest $8,000 per year for 10 years at 12% interest, how much will you have at the end of 10 years? D. You win the lottery and can either receive $750,000 as a lump sum or $50,000 per year for 20 years. Assuming you can earn 8% interest, which do you recommend and why?arrow_forwardUse the tables in Appendix B to answer the following questions. A. If you would like to accumulate $4,200 over the next 6 years when the interest rate is 8%, how much do you need to deposit in the account? B. If you place $8,700 in a savings account, how much will you have at the end of 12 years with an interest rate of 8%? C. You invest $2,000 per year, at the end of the year, for 20 years at 10% interest. How much will you have at the end of 20 years? D. You win the lottery and can either receive $500,000 as a lump sum or $60,000 per year for 20 years. Assuming you can earn 3% interest, which do you recommend and why?arrow_forwardFind the interest rates earned on each of the following. Round your answers to the nearest whole number. You borrow $720 and promise to pay back $792 at the end of 1 year. % You lend $720 and the borrower promises to pay you $792 at the end of 1 year. % You borrow $65,000 and promise to pay back $160,938 at the end of 8 years. % You borrow $8,000 and promise to make payments of $2,219.30 at the end of each year for 5 years. %arrow_forward
- You are loaned $300 at the end of years 1, 2, and 3. You pay this loan back with payments of X at the end of year 5, and $300 at the end of years 4, 6, and 7. Find X if the effective annual interest rate i = .07arrow_forwardSuppose that you're planning a vacation and borrow $2,000 from a bank for one year at a stated annual interest rate of 14 percent, with interest prepaid (a discount interest loan). Also, assume that the bank requires you to maintain a compensating balance equal to 10 percent of the initial loan value. What effective annual interest rate are you being charged?arrow_forwardGive typing answer with explanation and conclusion Find the interest rate (or rates of return) in each of the following situations. Do not round intermediate calculations. Round your answers to the nearest whole number. You borrow $740 and promise to pay back $814 at the end of 1 year. % You lend $740 and receive a promise to be paid $814 at the end of 1 year. % You borrow $60,000 and promise to pay back $171,156 at the end of 8 years. % You borrow $11,000 and promise to make payments of $3,359.50 at the end of each of the next 5 years. %arrow_forward
- Explain well with proper answer.arrow_forwarda. If you borrow $2,200 and agree to repay the loan in five equal annual payments at an interest rate of 12%, what will your payment be? b. What will your payment be if you make the first payment on the loan immediately instead of at the end of the first year?arrow_forwarda. If you borrow $1,100 and agree to repay the loan in six equal annual payments at an interest rate of 11%, what will your payment be? b. What will your payment be if you make the first payment on the loan immediately instead of at the end of the first year?arrow_forward
- Suppose a borrower and a lender enter into an agreement for a car loan, which lasts for one year. The nominal interest rate (i) is 11%. Both the borrower and the lender expect inflation in one year to be 4% (rº =4%). Scenario I. Suppose the next year, when the borrower repays the loan, the actual inflation (A )turns out to be 6%. Expected inflation a year ago was 4%. Actual inflation (1) is (greater than/lower than) expected inflation ( n°, . The ex-ante real interest rates is_ %. The ex-post real interest rates is %. Conclusion from scenario I: When actual inflation is greater than expected inflation, ex-ante real interest rate is _(greater than/lower than) the ex-post real interest rate, which means that borrowers are made (worse off/better off) and lenders are made (worse off/better off). Nominal interest rates should (rise/fall) according to the Fisher effect.arrow_forwardSuppose that you want to take out a loan and that your local bank wants to charge you an annual real interest rate equal to 3%. Assuming that the annualized expected rate of inflation over the life of the loan is 1%, determine the nominal interest rate that the bank will charge you. What was the actual real interest rate on the loan if, over the life of the loan, actual inflation is 0.5%?arrow_forwardSuppose you take out a $117,000, 20-year mortgage loan to buy a condo. The interest rate on the loan is 5%. To keep things simple, we will assume you make payments on the loan annually at the end of each year. a. What is your annual payment on the loan? b. Construct a mortgage amortization. c. What fraction of your initial loan payment is interest? d. What fraction of your initial loan payment is amortization? e. What is the total of the loan amount paid off after 10 years (halfway through the life of the loan)? f. If the inflation rate is 3%, what is the real value of the first (year-end) payment? g. If the inflation rate is 3%, what is the real value of the last (year-end) payment? h. Now assume the inflation rate is 6% and the real interest rate on the loan is unchanged. What must be the new nominal interest rate? i-1. Recompute the amortization table. i-2. What is the real value of the first (year-end) payment in this high-inflation scenario? j. What is the real value of the last…arrow_forward
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