What is known as discount interest

Assignment Help Financial Management
Reference no: EM131072825

This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $27,000 for one year. The interest rate is 13.2 percent. You and the lender agree that the interest on the loan will be .132 × $27,000 = $3,564. So the lender deducts this interest amount from the loan up front and gives you $23,436. In this case, we say that the discount is $3,564. What is the effective interest rate?

Reference no: EM131072825

Questions Cloud

Explain why the transformation must be one-to-one : Explain why the transformation must be one-to-one.
Difference between the present value of the settlement : A brilliant young scientist is killed in a plane crash. It is anticipated that he could have earned $370,000 a year for the next 40 years. The attorney for the plaintiff’s estate argues that the lost income should be discounted back to the present at..
Interpersonal conflict-handling styles are illustrated : Reread the Teams Competency feature on IBM's crossteam workouts. What levels of conflict were addressed through this conflict management approach? Explain. What interpersonal conflict-handling styles are illustrated? Explain.
Find the standard matrix of t : Find the standard matrix of T.
What is known as discount interest : This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. What is the effective interest rate?
How mama lola and her community deal with illness : In this final essay we want to examine healing within the context of Vodou. Describe (1) the "theory" of illness found within Vodou and (2) discuss how Mama Lola and her community deal with illness and healing
Save money to meet three objectives : Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $32,000 per month for 25 years, with the first payment received 30 years and 1 month from now. how much ..
Internet search feature and open the entry : Reread the Learning from Experience feature entitled "Cathy McBroom versus Federal Judge Samuel Kent." Enter "Samuel B. Kent" in your Internet search feature and open the entry from Wikipedia (http://en.wikipedia. org).
Calculate interest and principle for the payments : The investor takes $200,000 loan (at time zero) to purchase the machine at 6% interest rate. Loan has to be repaid by constant annual payments from year 1 to year 5 (5 payments). Calculate interest and principle for the payments, BTCF, ATCF, NPV and ..

Reviews

Write a Review

Financial Management Questions & Answers

  Complete the following table to quantitatively analyze

Open an additional window, at an additional cost of $18 per hour. The second window will have the same service rate as the first. Each window will have a separate line and the customers will join the shortest line.

  Current coupon-yield rates on bonds of different maturities

Discuss bond issues and prices in your country. Some specific items to discuss include: Research a specific bond (company or treasury that issues a bond) to determine the mechanism used for an initial offering. Where are bonds traded privately? What ..

  What are the main sections of the statement of operations

What is the analogous for-profit statement called? What are the main sections of the statement of operations?

  After tax cost of debt

Lawler's is considering a new project. The company has a debt-equity ratio of 0.72. The company's cost of equity is 15.1 percent, and the after tax cost of debt is 7.2 percent. The firm feels that the project is riskier than the company as a whole an..

  Wet corp has investment project that will reduce expenses

The wet corp has an investment project that will reduce expenses by $25,000 per year for three years. The project's cost is $55,000. If the asset is part of the three-year MACRS category (33% first year depreciation) and the company's tax rate is 34%..

  What are dividend yield and capital gains yield this year

Consider a stock that is not planning to pay a dividend until 10 years from now. The first dividend paid (D11) will be $2. After that, the company will maintain a constant dividend growth rate of 5% forever. What is the value of the stock in 10 years..

  Order to receive the string of payments

The nominal interest rate is 5%, compounded yearly. How much would you have to pay today in order to receive the string of payments 3,5,-6,5, where the it payment is to be received i years from now, i=1,2,3,4. (The payment -6 means that you will have..

  Total interest amount you will pay over the life of the loan

Loan Amortization Problem Type your full name in the following order First Middle Last Number of letters in full name = Now assume that your annual salary = number of letters in your full name x $45,000 and that the bank you want to borrow from. Calc..

  What is the current dividend per share

Suppose you know that a company’s stock currently sells for $51 per share and the required return on the stock is 11 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. It's ..

  What is a ruined cost

What is a ruined cost. Why is it important to understand this concept when analyzing capital projects

  Required rate of return on a stock with beta

Assume that the risk-free rate is 6% and that the market risk premium is 8%. What is the required rate of return on a stock with a beta of 1.3?

  The cost of equity and flotation costs

Messman Manufacturing will issue common stock to the public for $25. The expected dividend and growth in dividends are $3.50 per share and 6%, respectively. If the flotation cost is 9% of the issue's gross proceeds, what is the cost of external equit..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd