Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Textbook Question
Chapter 5, Problem 2P
Which do you prefer: a bank account that pays 5% per year (EAR) for three years or
a. An account that pays 2 ½%every six months for three years?
b. An account that pays 7 ½ % every 18 months for three years?
c. An account that pays ½%per month for three years?
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Which do you prefer: a bank account that pays
9%
per year (EAR) for three years or
a. An account that pays
4.5%
every six months for three years?
b. An account that pays
13.5%
every 18 months for three years?
c. An account that pays
0.9%
per month for three years?
Which do you prefer: a bank account that pays
5%
per year (EAR) for three years or
a. An account that pays
2.5%
every six months for three years?
b. An account that pays
7.5%
every 18 months for three years?
c. An account that pays
0.5%
per month for three years?
a. An account that pays
2.5%
every six months for three years?
If you deposit
$1
into a bank account that pays
5%
per year for three years, you will have
$nothing.
(Round to five decimal places.)
If you deposit
$1
into a bank account that pays
2.5%
every six months for three years, the amount you will receive after three years is
$nothing.
(Round to five decimal places.)
Therefore, you will prefer:
▼
2.5% every six months for three years
5% per year for three years
.
(Select from the drop-down menu.)
b. An account that pays
7.5%
every 18 months for three years?
If the account pays
7.5%
every 18 months for three years,…
Which do you prefer: a bank account that pays 10% per year (EAR) for 3 years or
a. An account that pays 5.0% every 6 months for 3 years?
b. An account that pays 15.0% every 18 months for 3 years?
c. An account that pays 1.0% per month for 3 years?
a. An account that pays 5.0% every 6 months for 3 years?
If you deposit $1 into a bank account that pays 10% per year for 3 years, the amount you will receive after 3 years is $
If you deposit $1 into a bank account that pays 5.0% every 6 months for 3 years, the amount you will receive after 3 years is $
(Select from the drop-down menu.)
(Round to five decimal places.)
Therefore, you will prefer
b. An account that pays 15.0% every 18 months for 3 years?
If you deposit $1 into a bank account that pays 15.0% every 18 months for 3 years, the amount you will receive after 3 years is $
Therefore, you will prefer
(Select from the drop-down menu.)
c. An account that pays 1.0% per month for 3 years?
If you deposit $1 into a bank account that pays…
Chapter 5 Solutions
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 - Prob. 33PCh. 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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- 4) Find the account balance at the end of 10 years, if you deposit 15,000 in an account today if a. The bank pays interest at 12% per year. b. The bank pays interest at 6% every 6 months. c. The bank pays interest at 3% per quarter, d. The bank pays interest at 1% per month. What do you observe when you compare the balances for the four scenarios listed.arrow_forward2. Suppose you have a bank account into which you make $100 deposits each month. You find a bank account paying r 100% (r is a decimal rate) per month. You would like to save up for a $2,000 car down payment, which you would like to have in 15 months. What must the bank account pay in order for this to be accomplished?arrow_forwardSuppose that you deposit $1,000 into a savings account that pays 8 percent. a. If the bank compounds interest annually, how much will you have in your account in four years? b. What would your balance be in four years if the bank used quarterly compounding rather than annual compounding? c. Suppose you deposited the $1,000 in four payments of $250 each year beginning one year from now. How much would you have in your account after you make the final deposit, based on 8 percent annual compounding? d. Suppose you deposited four equal payments in your account beginning one year from today. If you can invest your money at an 8 percent interest rate, how large would each of your payments have to be for you to obtain the same ending balance as you calculated in part (a)?arrow_forward
- K You plan to deposit $700 in a bank account now and $100 at the end of the year. If the account earns 7% interest per year, what will be the balance in the account right after you make the second deposit? ... The balance in the account right after you make the second deposit will be $ (Round to the nearest dollar.)arrow_forwardSuppose you need to hand $52,569 in an account 25 years from today and that account pays 6%. How much do you have to deposit into the account 1 years from today ?arrow_forwardif you deposit $17,000 in the bank today, you will be able to withdraw $24,000 from the account in six years. what is the implied rate that the back is paying?arrow_forward
- Suppose you want to borrow $90,000 and you find a bank offering a 20-year loan with an APR of 5%. a. Find your regular payments if you pay n = 1, 12, 26, 52 times a year. b. Compute the total payout for each of the loans in part (a). c. Compare the total payouts computed in part (b). a. The payment for n = 1 would be $ The payment for n = 12 would be $ The payment for n = 26 would be $ The payment for n= 52 would be $ (Do not round until the final answer. Then round to the nearest cent as needed.)arrow_forwardSuppose you deposited $1,000 in a credit union account that pays 7% with dailycompounding and a 365-day year. What is the EFF%, and how much could youwithdraw after 7 months, assuming this is seven-twelfths of a year? [EFF% = (1 +0.07/365)365 - 1 = 0.07250098 = 7.250098%. Thus, your account would growfrom $1,000 to $1,000 (1.07250098)0.583333 = $1,041.67, and you could withdraw that amount.]arrow_forwardSuppose you currently have $4,800 in your savings account, and your bank pays interest at a rate of 0.47% per month. If you make no further deposits or withdrawals, how much will you have in the account in 6 years? In 6 years' time, you will have $________ in the account.arrow_forward
- a) You are considering moving your money to a new bank offering a one-year GIC that pays an 8% APR with monthly compounding. Your current bank offers to match the rate you have been offered by the rival. The account at your bank would pay interest every six months. What is the APR they should offer you to convince you to stay?arrow_forwardSuppose you deposit $10 every week into an account that earns 4% interest compounded weekly. How much money (to the nearest cent) will you have in the account after 5 years? Summarize the information provided, stating the interest rate in a decimal form. d = r = N = k = Solve the problem and give your answer herearrow_forwardYou borrow $10,000 from a bank for three years at an annual interest rate, or annual percentage rate (APR), of 12%. Monthly payments will be made until all the principal and interest have been repaid. Solve, a. What is your monthly payment? b. If you must pay two points up front, meaning that you get only $9,800 from the bank, what is your true APR on the loan?arrow_forward
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