User Account

All Pages

Compute the effective annual interest rate

Assignment Help Finance Basics
Reference no: EM133073772

You are working as a personal financial adviser. Alecia, one of your clients approached you for consultation about her plan to buy her dream house that costs $400,000. Alecia has a saving of $100,000 and is considering two alternative options:

Investment 1: Investing that $100,000 in an investment that would pay a rate of return of 9% annually, compounding semi-annually for 15 years.

Investment 2: Buying her dream house now. Then Alecia needs to borrow $300,000 mortgage from Prosperity Bank. The current interest rate the bank offered for the new mortgage is 4% annually, compounding monthly. The standard life of mortgage in Australia is 30 years.

Required:

-Compute the effective annual interest rate (EAR) Alecia would actually get in Investment 1.

-Calculate the amount of money Alecia would accumulate in Investment 1 after 15 years.

-In Investment 1, how many year longer does Alecia need to wait until she has $400,000 to buy her dream house?

-Calculate the monthly mortgage payment Alecia needs to pay for 30 years in Investment 2. In investment 2, if Alecia leases the house to a company for a rent of $400 per week for 10 years, and put that rent in her bank account at the beginning of each week, how much money she will have in her bank account after 10 years if the interest rate is 3.5% annually, assuming compounding weekly?

Reference no: EM133073772

Questions Cloud

What are critical components for information security : What are critical components for information security - Cybersecurity program development for business: the essential planning guide. New Jersey, USA: Wiley
What is the payback period for project : Wii Brothers, a game manufacturer, has a new idea for an adventure game. It can market the game either as a traditional board game or as an interactive DVD, but
Identify the labels for axis x and axis y : The optimal risky portfolio (P) provides expected return of 12% pa with 20% standard deviation. The risk free rate of return (rf) is 3% pa. Based on this inform
What is the effect annual interest rate : Funland has a $60000 line of credit with 1st bank. The line of credit called for an interest rate of 7 percent and a compensating balance of 5 percent
Compute the effective annual interest rate : You are working as a personal financial adviser. Alecia, one of your clients approached you for consultation about her plan to buy her dream house that costs $4
What is the main thing in the control system : Minnesota Mining and Manufacturing Company - Formulate a strategy for the control system of the 3M corporation. What is the main thing in the control system
Calculate the monthly payment : You borrowed $15,000 today for 48 months at 12% per year to purchase a car. Calculate the monthly payment at the end of each month.
What are the two possibilities for how plants detect gravity : What are the two possibilities for how plants detect gravity and How were the protein coats removed from the surface of the bacteria
Calculate the present value of the payment package : Jenny decided to do the following things after completion of her finance degree at Holmes Institute:

Reviews

Write a Review

Finance Basics Questions & Answers

  What are united''s enterprise and total market values

Consider that United uses the entire £50 million in excess cash to pay a special dividend and what will be the amount of the regular yearly dividends in the future

  Cost of common equity using the capm

Hetterbrand's CFO has asked his financial analyst to estimate the firm's cost of common equity using the CAPM as a way of validating the earlier calculations.

  An interest rate of 13 per year compounded monthly is

an interest rate of 13per year compounded monthly is equivalent to what effective interest rate per

  What is the percentage change in price

What is the percentage change in price if the market yield decreases by 75 basis points immediately after the bond is issued?

  Calculate the cost of internal common equity

The common stock for the Bestsold Corporation sells for $58. If a new issue is sold, the flotation costs are estimated to be 8 percent. The company pays 50 percent of its earnings in dividends, and a $4 dividend was recently paid. Earnings per sha..

  Remaining maturity of these bonds

Sure Tea Co. has issued 4.8% annual coupon bonds that are now selling at a yield to maturity of 5.5% and current yield of 5.4861%. What is the remaining maturity of these bonds? (Do not round intermediate calculations. Round your answer to 2 decim..

  What is the weighted average cost of capital

What is the Weighted Average Cost of Capital given its tax rate is 32%? Ignore floatation costs.

  Calculate the fair price for howe common stock

The Howe Company is expected to grow at 12% for the next year, then at 10% for another year, and thereafter, to settle down to a growth rate of 6%

  Describe ability to complete financial projections

Describe your ability to complete financial projections.

  Expect ccm corporation to generate

Expect CCM Corporation to generate

  What is capital gain on investment

Over the course of the year, you received dividends totaling $1.64 per share. What is your capital gain on this investment?

  Draw the cash flows for the bond on a timeline

i) Consider a ten-year bond with a face value of $1000 that has a coupon rate of 5.5%, with semiannual payments.

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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