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Loretta agrees to lend Ted $750,000 to buy computers for his consulting firm. They agree to a nominal interest rate of 9%. Both expect the inflation rate to be 3%.
i. Calculate the expected real interest rate: ________%
ii. If inflation turns out to be 4% over the life of the loan, what is the ex post (actual) real interest rate? ________% Who gains from the unexpectedly high inflation, Loretta or Ted? ________
iii. If inflation turns out to be 2% over the life of the loan, what is the ex post (actual) real interest rate? ________%
iv. Who gains from the unexpectedly low inflation, Loretta or Ted?
According to the March 16, 2007 issue of The Value Line Investment Survey, the growth rate in dividends for Suncor Energy, Inc for the next five years is expected to be 7 percent. Suppose Suncor Energy meets this growth rate in dividends for the next..
Strict liability is liability regardless of fault
BWP projects sales of 100,000 units next year at an average price of $50 per unit. Variable costs are estimated at 40% of revenue, and fixed costs will be $2.4 million. BWP has $1 million in bonds outstanding on which it pays 7%, and its marginal tax..
Research a major corporation and identify its SBUs. Do you feel that any of the SBUs that you have identified have negative implications for the corporation? If so, why? What would you do to correct this?
What factors led to the near death of SifiBank after the financial crisis of 2008-2009? What is the Volcker Rule and what impact does it have on banking and financial risk management?
Jiffy Co. expects to pay a dividend of $3.00 per share in one year. The current price of Jiffy common stock is $60 per share. Flotation costs are $3.00 per share when Jiffy issues new stock. What is the cost of internal common equity if the long-term..
Light Sweet Petroleum Inc., is trying to evaluate a generation project with the following cash flows: Compute the IRR for this project. How many IRRs are there? Using the IRR decision rule, should the company accept the project? What’s going on here?
What do the terms core deposits and volatile, or noncore, deposits mean? Explain how a bank might estimate the magnitude of each.
The cost of building Runyang Bridge in China, the world's third longest suspension bridge, was approximately $5 million. The indefinite upkeep costs are estimated to be $403,777 per year. Annual benefits of $340,000 and annual disbenefits of $41,000 ..
Working with a group of people, create an investment policy statement for a real or fictitious organization. Share your Investment Policy Statement (IPS)
An Italian company is considering expanding the sales of its cappuccino machines to the U.S market. As a result, the idea of a setting up a manufacturing facility in the U.S should be explored. Why APV model is better than NPV model for capital budge..
Chin order to accumulate enough money for a down payment on a house, a couple deposits $313 per month into an account paying 3% compounded monthly. If payments are made at the end of each period, how much money will be in the account in 6 years.
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