Where will you borrow money? Justify your answer by showing all necessary calculations Choice A: DRSA Company that charges 4.66% per year compounded every six months Choice B: DCSS Company that charges 4.57% per year compounded every month
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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Where will you borrow money? Justify your answer by showing all necessary calculations
Choice A: DRSA Company that charges 4.66% per year compounded every six months
Choice B: DCSS Company that charges 4.57% per year compounded every month
Step by step
Solved in 3 steps
- 4. Consider a credit card with a balance of $7000. You wish to pay off the credit card, which has an APR of 17.99%, within 1 year. Calculate the following. Round your answer to the nearest cent, if necessary. a. Find the number of months you will need to pay the credit card if you pay $585 per month. b. Will you meet your goal and have the credit card paid in one year?If you borrow $9000 at an annual percentage rate (APR) of r (as a decimal) from a bank, and if you wish to pay off the loan in 3 years, then your monthly payment M (in dollars) can be calculated using: M = 9000 (er/12-1) / 1 - e-3r 1) Describe what M (0.035) would represent in terms of the loan, APR, and time. 2) If you are only able to afford a max monthly payment of $300, describe how you could use the above formula to figure out what the highest interest rate the bank could offer you and you would still be able to afford the monthly payments. In addition, determine the maximum interest rate that you could afford.Suppose you lend $11,500 to a friend at an APR of 10.00%. Your friend will pay you back beginning next month with 60 monthly installments. You can reinvest the payments you receive in your money market account at an APR of 1.10%, calculated monthly. a. How much will your friend pay you each month? ______________ b. How much will you have in your account at the end of 60 months? (to nearest $___________________ c. What is your effective annual return (EAR), _._ _%?______________
- Use PMT= HA to determine the regular payment amount, rounded to the nearest dollar. Your credit card has a balance of $4200 and an annual interest rate of 1% You decide to pay off the balance over three years. If there are no further purchases charged to the card, a. How much must you pay each month? b. How much total interest will you pay? a. The monthly payments are approximately $ (Do not round until the final answer. Then round to the nearest dollar as needed.) b. The total interest paid over 3 years is approximately $ (Round to the nearest dofar as needed.)Question 3: Calculate the rate the Rent-Way charges The RentWay company advertises itself as "Rent to own program". For example, you can rent a $180 TV, and pay $8 a week for 78 weeks, then the TV becomes your property. The going rate for good borrowers at the time was 8% per annum. Calculate the interest rate that you are charged if you get the a TV thru the RentWay company? Can you explain why these rates are required and paid. To help you answering the last question, assume that all RentWay renters are belonging to one the following two groups: group 1 ( bad credits) rents the TV, never pays a penny back and does not return the TV; group 2 (good credits) rents the TV, pays $8 for 78 weeks. Can you estimate what is the proportion of group 2 customers among the RentWay clients?Suppose you want to borrow $90,000 and you find a bank offering a 20-year loan with an APR of 5%. a. Find your regular payments if you pay n = 1, 12, 26, 52 times a year. b. Compute the total payout for each of the loans in part (a). c. Compare the total payouts computed in part (b). a. The payment for n = 1 would be $ The payment for n = 12 would be $ The payment for n = 26 would be $ The payment for n= 52 would be $ (Do not round until the final answer. Then round to the nearest cent as needed.)
- Assume that interest is the only finance charge. Use financial calculator to answer the questions. How much interest would be paid on a $8,000 installment loan to be repaid in 48 monthly installments of $211.10? Round the answer to 4 decimal places. % per month What is the APR on this loan? Round the answer to 2 decimal places. %Sam would like to use the PMT function in Excel to calculate the monthly payments on a car loan of $35,000 which is to be paid off in full after 3 years. Interest is charged at a rate of 4.43% per year and the payment to the loan is to be made at the end of each month. Which function argument is correct? (Reminder: =PMT(rate, nper, pv, [FV], [type]) =PMT( 4.43%, 36, -35000) =PMT( 4.43%/12, 36, -35000) =PMT( 4.43%/12, 3, -35000) =PMT( 4.43%, 3, -35000)Please give me a specific solution don't use excel. 1. You took out a loan that must be repaid with level payments at the end of each year. The loan has an annual effective rate of interest of 6%. The outstanding balance at the end of the seventh year was $22,000 and the outstanding balance at the end of the tenth year was $18,000. What is your payment on the loan? Round your answers to two decimal places. 2.You take out a loan that must be repaid with level payments made at the end of each of the next 14 years. The loan has an annual effective rate of interest of 7%. You know that P8 = $854.50. Compute the following. Round your answers to two decimal places. a) Payment ? b) Loan Amount ?
- Do the relevant calculations so you can indicate which you prefer: a bank account that pays 5.8% per year (EAR) for 3 years or a. an account that pays 2.6% every 6 months for 3 years? b. an account that pays 7.6% every 18 months for 3 years? c. an account that pays 0.58% per month for 3 years? (Note: Compare your current bank EAR with each of the three alternative accounts. Be careful not to round any intermediate steps less than six decimal places.) If you deposit $1 into a bank account that pays 5.8% per year for three years, the amount you will receive after three years is $ (Round to five decimal places.)A loan from Bank of Montreal for $195,000 is repaid by making payments at the beginning of every six months for 9 years. If interest is 7.84% compounded semiannually: What is the amount of each payment? Round all answers to two decimal places if necessary. Choose BGN or END? î P/Y = PV = $ C/Y = PMT= $ N= Cost of Financing = $ FV = $ What is the cost of financing? Round the answer to two decimal places. I/Y= (enter a positive value) %A payday loan company charges a $25 fee for a $550 payday loan that will be repaid in 17 days. Treating the fee as interest paid, what is the equivalent annual interest rate? % interest Round to the nearest percent. This will be over 100% Submit Question Search hp