The government passes a usury law that prohibits lending

Assignment Help Financial Management

Reference no: EM131247276

Suppose that the government passes a usury law that prohibits lending at more than 5% interest, but normal market rates are much higher due to inflation.

You have a customer, a Ms. Olsen, who wants to borrow at 20% and can put up her $100,000 store as collateral. Rather than refusing her request you decide to create a five-year contract with the following terms:

You hold title to the store and receive the right to sell her the store for $X at the end of five years.

If you decide to sell she must buy. In return you give her $80,000 in cash (the amount she wants to borrow) and the right to buy the store from you for $X at the end of five years. How can this contract provide you with a 20% annual rate of return on the $80,000?

Reference no: EM131247276

Questions Cloud

Determine the appropriate weighted average cost of capital : How would you go about determining the appropriate weighted average cost of capital for not-for-profit organizations given that they have no debt or equity?

Calculate the commission rate : Mulberry Company pays all its sales representatives a base salary of $27,000 per annum and a commission on all jackets that they sell over $2,000. If a sales representative's salary last month was $3,000 and his sales were $18,750, calculate the c..

Show that the trajectory of the center of mass is a parabola : Masses P and Q are attached by a massless rigid rod to form a dumbbell, as shown in Figure 6.34. The dumbbell is tossed in the presence of gravity so that the masses may spin about the center of mass G. Show that the trajectory of the center of ma..

The contract anticipating a positive return : After a call contract is created, the outcome must be a zero-sum game; - explain how they could both enter into the contract anticipating a positive return?

The government passes a usury law that prohibits lending : If you decide to sell she must buy. In return you give her $80,000 in cash and the right to buy the store from you for $X at the end of five years. How can this contract provide you with a 20% annual rate of return on the $80,000?

Find the equations of motion of each mass : Mass m is connected to M by a spring of constant k and rest length l0. Mass M is connected to a fixed wall by a spring of constant k and rest length l0 and a damper with constant b. Find the equations of motion of each mass

How fast is joe walking : Jill is 11 kilometers11kilometers away from Joe. Both begin to walk toward each other at the same time. Jill walks at 2.5 kilometers per hour. They meet in 2 hours. How fast is Joe walking?

Explain how the environmental contexts impact development : Explain, from the perspective of your specialization, how the identity issues (for example, Erikson's theoretical perspective) that emerged in adolescence could be manifested in adulthood. Explain how this might help in understanding and determin..

Sum of money amounting : A sum of money amounting to $3.45 consists of dimes and quarters. If there are 24 coins inall, how many arequarters?

User Account

All Pages