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1. His recently departed dear Aunt Annie, may she rest in peace, has left Tom a 6-year annuity paying $4,500 per year. He will receive the first payment 4 years from today. If he is discounting at 7% (EAR), what is the present value of his inheritance?
2. This question is based on American Express Bank’s card member agreement. This agreement is a contract between a credit card holder and American Express Bank. In what follows, assume that the Prime Rate as defined by the agreement is 0% and your APR for purchases is Prime Rate + 11.99%, and hence you are paying 11.99% APR on balances you carry. Assume that you are planning to carry the balance for one month and your average daily balance, as defined by the agreement, will be exactly $1,000 every day. There are 30 days in the month. Answer the following questions:
a. According to the card member agreement, how much interest will you have to pay at the end of the month?
b. Does American Express calculate the interest within one month as simple or compound interest?
c. What is the effective annual rate (EAR) that American Express charges the card holder?
Calculate the payback period if advanced machine is purchased and calculate the net present value if advanced machine is purchased.
In 2014, stock ABC pays $0.80 per share quarterly dividend and the dividend was $0.50 per share in 2008. The growth rate is 5.0%. Find the beta for stock ABC. Find the current interest rate on a 6-month treasury bill. Calculate the expected return fo..
What is the future value of $2,600 in 19 years assuming an interest rate of 7.9 percent compounded semi-annually? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Find the value of American Call option with an exercise price of $150 and a stock price of $145. The stock can go up by 12% and down by 18% in each of the two binomial periods. The risk free rate is 3%. Determine the price of option today using two p..
Consider a European call option on a non-dividend-paying stock where the stock price is $52, the strike price $50, the risk-free rate is 5%, the volatility is 30%, and the time to maturity is one year. What is the value of the option assuming no poss..
You want to buy a car, and a local bank will lend you $30,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 7% with interest paid monthly. What will be the monthly loan payment?
Given the following information, determine the beta coefficient for Stock J that is consistent with equilibrium: rJ = 14.5%; rRF = 6.75%; rM = 8%. Bradford Manufacturing Company has a beta of 1.8, while Farley Industries has a beta of 0.55. The requi..
How does the tax environment affect the various types of organizations? (Corporation, partnership, LLC, Sole proprietorship). Explain
Assume a $1,000 face value bond has a coupon rate of 8.5 percent paid semi annually and has an eight-year life. If investors are willing to accept a 10 percent rate of return on bonds of similar quality, what is the present value or worth of this bon..
Identify and discuss two reinburstment methods that the organization may utilize, and explain what risks those methods may or may not bring to the organization.
Assessing Insurance Company Operations- As a consultant to an insurance company, you have been asked to assess the asset composition of the company. The insurance company has recently sold a large amount of bonds and invested the proceeds in real est..
One way to calculate a stock's beta is to
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