One business has a large amount of debt on which it pays an annual yield of 8%. A competitor has no debt, and any excess money goes into the bank and earns a yield of 1.5%. Éach of these businesses bids on a contract which pays $40,000 in one year and nine months. Indicate which company gives this contract a higher present value, and calculate the difference between these present values, rounding to the nearest dollar. [Hint: for both businesses the yield is treated as positive.]
One business has a large amount of debt on which it pays an annual yield of 8%. A competitor has no debt, and any excess money goes into the bank and earns a yield of 1.5%. Éach of these businesses bids on a contract which pays $40,000 in one year and nine months. Indicate which company gives this contract a higher present value, and calculate the difference between these present values, rounding to the nearest dollar. [Hint: for both businesses the yield is treated as positive.]
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![One business has a large amount of debt on
which it pays an annual yield of 8%. A
competitor has no debt, and any excess
money goes into the bank and earns a yield of
1.5%. Éach of these businesses bids on a
contract which pays $40,000 in one year and
nine months. Indicate which company gives
this contract a higher present value, and
calculate the difference between these
present values, rounding to the nearest dollar.
[Hint: for both businesses the yield is treated
as positive.]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb0522920-49c7-4ab3-9434-7ea63899bebe%2F8abe3f8d-d851-4632-9b04-fecb3446b54b%2Fv7wkdc_processed.jpeg&w=3840&q=75)
Transcribed Image Text:One business has a large amount of debt on
which it pays an annual yield of 8%. A
competitor has no debt, and any excess
money goes into the bank and earns a yield of
1.5%. Éach of these businesses bids on a
contract which pays $40,000 in one year and
nine months. Indicate which company gives
this contract a higher present value, and
calculate the difference between these
present values, rounding to the nearest dollar.
[Hint: for both businesses the yield is treated
as positive.]
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