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This problem illustrates a deceptive way of quoting interest rates called add-on interest. Imagine that you see an advertisement for Crazy Judy’s Stereo City that reads something like this: “$1,000 Instant Credit! 16.1% Simple Interest! Three Years to Pay! Low, Low Monthly Payments!” You’re not exactly sure what all this means and somebody has spilled ink over the APR on the loan contract, so you ask the manager for clarification. Judy explains that if you borrow $1,000 for three years at 16.1 percent interest, in three years you will owe: $1,000 × 1.1613 = $1,000 × 1.56494 = $1,564.94 Now, Judy recognizes that coming up with $1,564.94 all at once might be a strain, so she lets you make “low, low monthly payments” of $1,564.94/36 = $43.47 per month, even though this is extra bookkeeping work for her.
What is the APR on this loan?
What is the EAR?
Prepare a term paper on Do dividends grow at the same rate as earnings and is the Gordon Model fact or fiction
The annual fuel costs required to operate a small solid-waste treatment plant are projected to be $1.5 million, without considering any future inflation. The best estimates indicate that the annual inflation-free interest rate (i') will be 6% and the..
Compute the net advantage to leasing. In general, what effect would the use of accelerated depreciation, such as MACRS, have on the answer to part a? What alternative, leasing or owning, should be chosen?
A company issues a 10 year bond on par with a coupon rate of 6.5% paid semi annually. The YTM at the beginning of the third year of the bond is 8.4% ( 8 YEARS LEFT TILL MATURITY). What is the new price of the bond?
LKM, Inc, wants to issue new 20 year bonds for some much needed expansion projects. The company currently has bonds on the market that sell for $972.78, making semi-annual payments, with a 6.5% coupon rate. What is the yield to maturity of the bond?
What constitutes total risk, and how is it measured? Of the two components of total risk, discuss which one investors can eliminate? Explain the remaining risk, and how is it measured?
John Tye was hired as the new corporate finance analyst at I-EII Enterprises and received his first assignment. John is to take the $25 million in cash received from a recent divestiture, to use part of these proceeds to retire an outstanding $10 mil..
We are evaluating a project that costs $1,160,000, has a ten-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Calculate the accounting break-even point. What is the degree of operati..
assignment most people become aware of the importance of derivatives only by reading headline reports of major
Which of the following practices will reduce a firm's collection float?
The sales-to-inventory ratio:
Classify the problems as to whether they are pure-integer, mixed-integer, zero-one, goal, or nonlinear programming problems.
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