Unscrupulous lender-what is the effective interest rate

Assignment Help Financial Management
Reference no: EM13919827

This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $20,000 for one year. The interest rate is 12.5 percent. You and the lender agree that the interest on the loan will be 0.125 × $20,000 = $2,500. So the lender deducts this interest amount from the loan up front and gives you $17,500. In this case, we say that the discount is $2,500. What is the effective interest rate? (Round your answer to 2 decimal places. (e.g., 32.16))

Reference no: EM13919827

Questions Cloud

Analysts expect the company''s dividend to grow : A stock just paid a dividend of D0 = $1.1. The required rate of return is rs = 9.2%, and the constant growth rate is g = 6%. What is the current stock price?
What are low inflation rates called : Which of the following trends in the new business environment is concerned with the length of time it takes to develop, manufacture, and deliver a product?
Yield to maturity on the delicious mills bonds : 5 years ago, Delicious Mills, Inc. issued 30-year to maturity bonds that had a 8.61 percent annual coupon rate, paid semiannually. The bonds had a $1,000 face value. Since then, interest rates in general have changed and the yield to maturity on the ..
Suggest business conditions : Management believes that excessive inventories have accumulated for all three products. As a result, a new policy dictates that ending inventory in any month should equal 30% of the expected unit sales
Unscrupulous lender-what is the effective interest rate : Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $20,000 for one year. The interest rate is 12.5 percent. You and the lender agree that the interest on the loan will be 0.125 × $20,000 = $2,500. So the lender ..
The following selected financial information is available : The following selected financial information is available for Best, Inc. Amounts are in millions of dollars.
What is the value of the unlevered firm and tax shield : Merger Valuation with Change in Capital Structure Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.50. What is the value..
Burden of proof in employment discrimination : HR legal environments are constantly changing. The court case that set the standard to place the burden of proof in employment discrimination on the company was:
Balance in loans payable : The June 30 balance sheet includes balances of $15,000 in cash; $45,000 in accounts receivable; $4,500 in accounts payable; and a $5,000 balance in loans payable. A minimum cash balance of $15,000 is required.

Reviews

Write a Review

Financial Management Questions & Answers

  Use of equity financing over debt financing accurate

Christopher William, president of William Industries which produces widgets, has hired you to determine its cost of debt and the cost of equity capital. The stock currently sells for $25 per share and the dividend will be $5. Is Christopher’s analysi..

  Based upon comparison of after-tax annual worth

A granary has two options for a conveyor used in the manufacture of grain for transporting, filling, or emptying. One conveyor can be purchased and installed for $70,000 with $3,000 salvage value after 16 years. The other can be purchased and install..

  Compute the price of the preferred stock

The preferred stock of Denver Savings and Loan pays an annual dividend of $5.70. It has a required rate of return of 6%. Compute the price of the preferred stock.

  Earnings and dividends are declining at the constant rate

Martell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 8% pe..

  Basic interest rate swap and futures positions

Suppose that you buy an interest rate cap on three month LIBOR with a two year maturity and simultaneously sell a floor on three month LIBOR with a two year maturity. Ignore the premiums. Draw a profit diagram that indicates when you will gain and lo..

  What should be the current market price per share

Kennebunk Manufacturing is expected to pay a dividend of $8 per share next year. The dividend growth rate is expected to continue to be 3%. Required rate of return is 7%. What should be the current market price per share?

  Difference in transaction exposure and accounting exposure

What is meant by the “translation” of foreign currency financial statements? What is the cause of balance sheet exposure? What is the primary difference between transaction exposure and accounting exposure? When would the balance sheet exposure arisi..

  Make you indifferent between buying and leasing

After deciding you want a new car, you can either lease the car or purchase it with a four-year loan. The car you want costs $37,000. The dealer has a special leasing arrangement where you pay $103 today and $503 per month for the next four years. Wh..

  Mature manufacturing firm-what will you pay for share today

Antiques R Us is a mature manufacturing firm. The company just paid a dividend of $8.90, but management expects to reduce the pay out by 4 percent per year indefinitely. If you require a return of 14 percent on this stock, what will you pay for a sha..

  Interest rates reflect effect of six different things

1.Demonstrate that bond yields and interest rates reflect the effect of six different things. 2. Explain how each of these concepts influence investors: expected future inflation, interest rate risk, default risk, taxability and lack of liquidity

  Annuity Payment and EAR

Annuity Payment and EAR You want to buy a car, and a local bank will lend you $10,000. The loan would be fully amortized over 5 years (60 months), and the nominal interest rate would be 6%, with interest paid monthly. What is the monthly loan payment..

  How much are the total assets of the firm

During the last year, Sigma Co had Net income of $148, paid $17 in dividends, and sold new stock for $39. Beginning equity for the year was $610. What was Ending Equity?

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!

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