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Different compounding periods, are used for different types of investments. In order to properly compare investments or loans with different compounding periods, we need to put them on a common basis. In order to do this, you need to understand the difference between the nominal interest rate (INOM) and the effective annual rate (EAR). The (periodic/effective/nominal) interest rate is quoted by borrowers and lenders, and it is also called the annual percentage rate (APR). If the compounding periods for different securities is the same, then you (can/cannot) use the APR for comparison. If the securities have different compounding periods, then the (Iper/EAR/Inom) must be used for comparison.
Here, M is the number of compounding periods per year and INOM/M is equal to the periodic rate (IPER). If a loan or investment uses (quarterly/semiannua/lannual) compounding, then the nominal interest rate is also its effective annual rate. However, if compounding occurs more than once a year, EAR is (less than/higher than/equal to) INOM.
Quantitative Problem: Bank 1 lends funds at a nominal rate of 9% with payments to be made semiannually. Bank 2 requires payments to be made quarterly. If Bank 2 would like to charge the same effective annual rate as Bank 1, what nominal interest rate will they charge their customers? Round your answer to three decimal places. Do not round intermediate calculations.
Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. Calculate the NPV for both conveyor belt systems.
If the demand for U.S. exports falls because of a change in foreign tastes, what will happen to the exchange rate?
Prepare a critical assessment of the company's risk management program. This assessment should clearly identify the program's strengths and weaknesses.
Asset Management Ratios Corn Products, Corp. ended the year 2008 with an average collection period of 35 days.
Suppose that to short a stock you are required to deposit an amount equal to initial price of the stock. At the end of year 1, the stock price is X_1 and you liquidate your position. You receive your profit from shorting equal to X_0 - X_1 and you re..
rivalry among competing sellers tends to be more intense when. weaker collective impact of competitive pressures associated with five competitive forces.
Niko has purchased a brand new machine to produce its High Flight line of shoes. The machine has an economic life of four years. The depreciation schedule for the machine is straight-line with no salvage value.
Compute the bid/ask percentage spread for Mexican pesos retail transactions in which the ask rate is $.11 and the bid rate is $.10? Capital one Bank considers borrowing $10 million Singapore dollars in the interbank market and investing the funds in ..
Optimal-distribution, Par value, Positive, Preferred stock, Residual distribution model, Short-term, Stock dividend, Stock split, Target capital structure, Tax-deductible, Tax preference theory, Treasury stock, Undervalued
The Golden Gate Bridge in San Francisco was financed with construction bonds sold for $34 million in 1931. These were 40-year bonds, and the $34 million principal plus almost $38 million in interest were repaid in total in 1971. Assume the constructi..
Suppose the debt ratio for a company is 45%. The after tax cost of debt is 5% and the cost of retained earnings is 12%. What is the WACC of this company based on the information given? suppose the Debt over equity ratio (D/E) for a company is 1.6. Th..
Bourdon Software has 8.6 percent coupon bonds on the market with 20 years to maturity. The bonds make semiannual payments and currently sell for 107.1 percent of par. What is the current yield on the bonds?
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