EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103145947
Author: DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 5, Problem 1P
Your bank is offering you an account that will pay 20% interest in total for a two-year deposit. Determine the equivalent discount rate for a period length of
- a. Six months.
- b. One year.
- c. One month.
a)
Expert Solution
Summary Introduction
To determine:
The equivalent discount rate for six months.
Introduction:
The discount rate is the interest rate that is charged to depository institutions and commercial banks for the loan received. The discount rate is used to calculate the present value of future cash flows.
Answer to Problem 1P
The equivalent discount rate for six months is 4.66%.
Explanation of Solution
Given information:
A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.
Formula to compute the equivalent discount rate:
Here
r = rate of interest.
n = number of years.
Hence, the equivalent discount rate for six months is 0.0466 or 4.66%.
b)
Expert Solution
Summary Introduction
To determine:
The equivalent discount rate for one year.
Answer to Problem 1P
The equivalent rate for one year is 9.54%.
Explanation of Solution
Given information:
A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.
Formula to compute the equivalent discount rate:
Here
r = rate of interest.
n = number of years.
Hence, the equivalent discount rate for one year is 0.0954 or 9.54%.
c)
Expert Solution
Summary Introduction
To determine:
The equivalent discount rate for one month.
Answer to Problem 1P
The equivalent discount rate for one month is 0.761%.
Explanation of Solution
Given information:
A bank offers Person X an account that pays 20% interest rate in total for a two-year deposit.
Formula to compute the equivalent discount rate:
Here
r = rate of interest.
n = number of years.
Hence, the equivalent discount rate for one month is 0.00761 or 0.761%.
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Write in memo format a response to your Manager, based on the information presented below for the Duncan Company and also based on your additional research. Your Manager has advised you to make any assumptions where necessary.
Duncan Company is a large manufacturer and distributor of cake supplies. It is based in United Kingdon (Headquarters) It sends supplies to firms throughout the United States and the Caribbean . It markets its supplies through periodic mass mailings of catalogues to those firms. Its clients can make orders over the phone and Duncan ships the supplies upon demand. The main competition for Duncan’s comes from one U.S. firm and one Canadian firm. Another British firm has a small share of the U.S. market but is at a disadvantage because of its distance. The British firm’s marketing and transportation costs in the U.S. market are relatively high. a) Duncan Company plans to penetrate either the Canadian market or two other Caribbean Countries (Jamaica and Haiti). What…
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Chapter 5 Solutions
EBK CORPORATE FINANCE
Ch. 5.1 - Prob. 1CCCh. 5.1 - Prob. 2CCCh. 5.2 - How can you compute the outstanding balance on a...Ch. 5.2 - What is an amortizing loan?Ch. 5.3 - What is the difference between a nominal and real...Ch. 5.3 - How do investors expectations of future short-term...Ch. 5.4 - Prob. 1CCCh. 5.4 - How do taxes affect the interest earned on an...Ch. 5.5 - What is the opportunity cost of capital?Ch. 5.5 - Why do different interest rates exist, even in a...
Ch. 5 - Your bank is offering you an account that will pay...Ch. 5 - Which do you prefer: a bank account that pays 5%...Ch. 5 - Prob. 3PCh. 5 - Prob. 4PCh. 5 - You are considering moving your money to a new...Ch. 5 - Prob. 6PCh. 5 - Prob. 7PCh. 5 - You can earn 50 in interest on a 1000 deposit for...Ch. 5 - Prob. 9PCh. 5 - Prob. 10PCh. 5 - Prob. 11PCh. 5 - Prob. 12PCh. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - You have just sold your house for 1,000,000 in...Ch. 5 - Prob. 16PCh. 5 - Your mortgage has 25 years left, and has an APR of...Ch. 5 - Prob. 18PCh. 5 - Prob. 19PCh. 5 - Prob. 20PCh. 5 - Prob. 21PCh. 5 - Prob. 22PCh. 5 - The mortgage on your house is five years old. It...Ch. 5 - You have credit card debt of 25,000 that has an...Ch. 5 - Prob. 25PCh. 5 - Prob. 26PCh. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Suppose the term structure of risk-free interest...Ch. 5 - Prob. 30PCh. 5 - Prob. 31PCh. 5 - Suppose the current one-year interest rate is 6%....Ch. 5 - Figure 5.4 shows that Johnson and Johnsons...Ch. 5 - Prob. 34PCh. 5 - Prob. 35PCh. 5 - Prob. 36PCh. 5 - Your best friend consults you for investment...Ch. 5 - Suppose you have outstanding debt with an 8%...Ch. 5 - In the summer of 2008, at Heathrow Airport in...Ch. 5 - Your firm is considering the purchase of a new...Ch. 5 - Prob. 41P
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