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Rudy and Karyn come across an investment opportunity that offers them a guaranteed return. The terms of the investment are as follows:
Holding Period: 1 year
Initial cost: $1,000
Guaranteed Sales amount: $1,800
The couple is excited by the opportunity but they don’t have enough liquidity to put the cash forward the investment. You propose a solution: borrow the $1,000 under their Credit Line 1 (credit terms for this line of credit are listed in Question 1) and put it towards the purchase of the investment. In one year, sell the investment for the guaranteed amount, collect the cash, and pay off the balance of the debt. Assume at this time that the investment amount is the only debt that the couple has taken on.
How can you justify your proposal? What would be the net return of your proposal? Ignore the effect of taxes. (Hint: consider how the rate of return on the investment compares to the cost of borrowing money under this specific credit line)
Interest rate is 20%
Luis has $120,000 in his retirement account at his present company. Because he is assuming a position with another company, Luis is planning to "roll over" his assets to a new account. Luis also plans to put $3000/quarter into the new account until h..
A manager should attempt to maximize the value of the firm by:
Today is a day in May 2525 and a bond with an annual yield-to-maturity of 9.0% just yesterday paid a coupon. The bond matures in May 2543 and its quoted bond price is 130.03 percent of par (semi annual compounding). Find the coupon rate.
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Calculate the effect of points to be paid on a $200,000 loan at 8%, monthly payments with a 30 year term given the following scenarios: assuming 4 points and the loan is held to maturity.
The last dividend paid by New Technologies was an annual dividend of $1.40 a share. Dividends for the next 3 years will be increased at an annual rate of 8 percent. After that, dividends are expected to increase by 3 percent each year. The discount r..
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