Same total annual expenditures resulting from their loans

Assignment Help Financial Management

Reference no: EM13937337

Bob and Barbara are friends. Bob takes out a 10,000 loan and agrees to repay it over twelve years by making annual level payments at an effective rate of 5.62499%. At the same time, Barbara takes out a 10,000 loan and agrees to repay it by making annual interest payments at an annual effective interest rate of i. She also agrees to make annual level deposits into a sinking fund that earns 4% annual effective interest so as to accumulate 10,000 at the end of the twelve years. Bob and Barbara discover they have the same total annual expenditures resulting from their loans. Find the rate i.

Reference no: EM13937337

Questions Cloud

Evaluate generation project with the cash flows : Light Sweet Petroleum, Inc., is trying to evaluate a generation project with the following cash flows: Year Cash Flow 0 –$ 39,400,000 1 63,400,000 2 – 12,400,000 a-1 What is the NPV for the project if the company requires a return of 10 percent?

Hedging using futures : Suppose a farmer is expecting that her crop of oranges will be ready for harvest and sale as 150,000 pounds of orange juice in 3 months time. Suppose each orange juice futures contract is for 15,000 pounds of orange juice, and the current futures pri..

Indifferent between these two projects : Garage, Inc., has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$ 28,000 –$ 28,000 1 13,400 3,800 2 11,300 9,300 3 8,700 14,200 4 4,600 15,800 a-1 What is the IRR for each of these projects? At what dis..

Project that provides annual cash flows : A project that provides annual cash flows of $16,300 for eight years costs $69,000 today. What is the NPV for the project if the required return is 7 percent? At a required return of 7 percent, should the firm accept this project?

Same total annual expenditures resulting from their loans : Bob and Barbara are friends. Bob takes out a 10,000 loan and agrees to repay it over twelve years by making annual level payments at an effective rate of 5.62499%. Bob and Barbara discover they have the same total annual expenditures resulting from t..

What is the project payback period if the initial cost : An investment project provides cash inflows of $630 per year for eight years. What is the project payback period if the initial cost is $1,775?

How many years do these bonds have left until they mature : LKD Co. has 12 percent coupon bonds with a YTM of 8.5 percent. The current yield on these bonds is 9.4 percent. How many years do these bonds have left until they mature?

What effective annual interest rate does the firm : A firm offers terms of 1.4/10, net 60. a. What effective annual interest rate does the firm earn when a customer does not take the discount? (Use 365 days a year. What effective annual interest rate does the firm earn if the terms are changed to 1.4/..

Compute present values of the options expiring : Assume sigma=0.15, nu=0.10, and current stock price $32. Monthly interest rate is 1%. Compute present values of the following options expiring in 3 months. (a) A European call option with strike $30, assuming $2 dividend in 40 days. (b) European put ..

User Account

All Pages