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After visiting several automobile dealerships, Richard Welch selects the car he wants. He likes its $10,000 price, but financing through the dealer is no bargain. He has $2,000 cash for a down payment, so he needs an $8,000 loan. In shopping at several banks for an installment loan, he learns that interest on most automobile loans is quoted at add-on rates. That is, during the life of the loan, interest is paid on the full amount borrowed even though a portion of the principal has been paid back. Richard borrows $8,000 for a period of four years at an add-on interest rate of 11 percent.
Questions
a. What is the total interest on Richard’s loan?
b. What is the total cost of the car?
c. What is the monthly payment?
d. What is the annual percentage rate (APR)?
Micro Bike Company has short term investment of 50 debt of 1500 and preferred stock of 200. The equity of the micro bike has 100 shares. The company forecasts following: Based upon the above answer the following: What is the present value of the free..
Prepare the journal entries on June 30, 2011, to record the interest and necessary adjustments for changes in fair value. Use the extended method demonstrated in Illustration A-2.
Create SML graph that needs to be computer generated either through excel or any other program, reflecting a risk-free rate of 2% and the market return 7%. C. Required rate of return needs to be on the Y axis and the beta needs to be on the X axis
Consider a four-month futures put option with a strike price of 100 when the risk-free interest rate is 10% per annum. The current futures price is 87. What is a lower bound for the value of the futures option if it is (a) European and (b) American?
Forward transactions
Percy Motors has a target capital structure of 30% debt and 70% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 8%, and its tax rate is 40%. Percy's CFO estimates that the company's WACC is 15.00%. ..
Read the case study titled "Meet Art" on page 147 in our textbook. How would you evaluate Art's decision-making skills? What would you have done differently? In this case study, how would you evaluate Joan's response to Art's request to move to Calif..
If a bond is selling on the open market at $960 is it selling at a premium or discount? List 2 factors that might contribute to this selling price. What is the value today of a bond with the below attributes? What is the value of $50,000 invested at ..
From an US investor's perspective, investing in an emerging market bond is risky because of:
If the current yield on a bond is higher than the coupon rate then its price is less than its par value. A US equity mutual fund that last year had a = 0 underperformed over that period. A US bond mutual fund that last year had a Sharpe ratio = 0 und..
Old Reliable Manufacturing Company's stock has a market price of $10.50 per share and the market’s assessment of its steady state return on equity is 12% per year. Assume its book value is expected to grow at 5 percent per year indefinitely, and the ..
On January 1, Stacy's portfolio was valued at $96,534. During the year Stacy received $3,285 in interest and $4,100 in dividends. She also sold one stock at a gain of $850. The value of the portfolio on December 31 of the same year was $113,201. At t..
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