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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_____ 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______ use the APR for comparison. If the securities have different compounding periods, then the____ 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_____ compounding, then the nominal annual rate is also its effective annual rate. However, if compounding occurs more than once a year, EAR is_____ 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 annual rate will they charge their customers? Round your answer to three decimal places. Do not round intermediate calculations. _____%
Fuller Ice Cream Company buys 73,000 gallons of milk annually. Due to state regulations, it cannot store the milk for more than 8 days. Find the optimal size of its milk storage tank. The price of milk is $3 per gallon, and the cost of capital for Fu..
When storing corn there is spoilage, i.e. the amount of usable corn shrinks over time. Assume that corn spoils continuously at rate of 2% per month. Describe an arbitrage strategy to take advantage of this mispricing.
The expected return on the market portfolio is 17 percent, and the return on the risk-free security is 5 percent. What is the expected return on a portfolio with a beta equal to 0.5?
According to the? dividend-discount model, what is the value of a share of Gillette stock if the? firm's equity cost of capital is 7.4 %?
A couple has just given birth to a baby and named him Jimmy. They want to start a college savings account for Jimmy and start saving for his college education. The following facts will help you work this problem
what would an endless, inheritable free subscription to one Starbucks coffee per day be worth today?
The Fed's purchases and sales of government securities are called: Which of the following would lead to stagflation?
If these are the only two investments in her portfolio, what is her portfolio's beta?
What rate of return did Starbuck's earn on their investments in Starbuck's stock?
You purchased a property 4 years ago for $275,000 using a 75% LTV mortgage. how much equity will you get to keep as cash?
Accountants often express ROI as the product of two components - capital turnover and return on sales. You are considering investing in one of three companies, all in the same industry, and are given the following information: Why would you desire th..
Will the effective annual rate ever be equal to the nominal (quoted) rate?
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