What interest rate would make it worthwhile to incur a compensating balance of $15,000 in order to get a 1-percent lower interest rate on a 1-year, pure discount loan of $250,000? Is it worth incurring the compensating balance to obtain the lower rate?

What interest rate would make it worthwhile to incur a compensating balance of $15,000 in order to get a 1-percent lower interest rate on a 1-year, pure discount loan of $250,000? Is it worth incurring the compensating balance to obtain the lower rate?

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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Use the following information to answer the question: Loan amount: $245,000 Loan term: 30 years Contract interest rate: 6.00% Monthly payment: $1,468.8988 Total up-front financing costs paid to lender: $9,100 Up-front financing costs paid to third party service providers: $2.900 Calculate the lender's expected yield/IRR if the lender expects the borrower to keep the loan outstanding for the entire loan term. O None of the selections is correct 6.36% 6.00% 6.48% O 6.54%
Which of the following is TRUE? O An American call option on a stock should never be exercised early O An American call option on a stock should be exercised early when dividends are expected O It can sometimes be optimal to exercise early an American call option on a stock even when no dividends are expected and there is no liquidity or portfolio rebalancing need. O An American call option on a stock should never be exercised early when no dividends are expected << Previous Next ▸
Which of the following statements is CORRECT? Question 2 options: a) The proportion of the payment that goes toward interest on a fully amortized loan increases over time. b) An investment that has a nomiral rate of 6% with semiannual payments will have an effective rate that is smaller than 6%. c) If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different. d) The present value of a 3-year, $150 ordinary annuity will exceed the present value of a 3-year, $150 annuity due. e) if a loan has a nominal annual rate of 7%, then the effective rate will never be less than 7%.
2) Solve the following NPV problems: Problem 1 . Suppose that a borrower receives a 1,000 euro loan from Bank A, with a 10-year maturity at an annual interest rate of 5% with the obligation to pay the interest at the end of each year for the next 10 years. However, at the end of the 6th year, due to financial difficulties, he borrows from the same bank an additional 1,000 euros at an annual interest rate of 5% making the following agreement: a. not to pay any installment at the end of the next two years, i.e. the 7th and 8th year, and b. then pay an equal amount of interest for the next 8 years (i.e. from the end of the 9th year until the end of the 16th year) in order to fully repay the first as well as the second loan. It is requested to calculate the interest-rate installment of the loan that occurred after the restructuring. Problem 2. Suppose that parents make family planning to finance their child's studies and buy a car. The expected costs for studies are EUR 10 000 per year…
Read each of the following statements, and indicate which overdraft protection arrangement is being described. • This program frequently necessitates transfers of fixed increments (e.g., $100) and may result in greater-than-desired transfers and resulting interest charges. This describes: • This program often requires the annual fees or cash-advance feer of credit or a bank-issued credit card, and incur interest charges and An automatic overdraft loan agreement describes: • This program could still result in A courtesy overdraft/bounce protection account does not have sufficient funds to cover the overdraft. This describes: An automatic funds transfer agreement
When you borrow money, you typically have to pay an interest rate. What does interest represent? a) The cost of borrowing money b) The profit earned on an investment c) A bank fee d) A penalty for late payment????
What are the key differences between leasing and borrowing assuming that the loan agreement calls for a principal reduction of RM8,400 every year instead of equal annual payments.
If an interest rate of 8.9% compounded semi-annually is charged on a car loan, what effective rate of interest should be disclosed to the borrower?
2
Which loan strategy would achieve some flexibility; no exposure to credit risk but exposure to repricing risk? Question 22 options: A company borrows $1 million for one year at a fixed rate, then renew the credit annually A company borrows $5 million for five years at a fixed interest rate A company borrows $5 million for five years at a floating rate, LIBOR + 1% A company borrows $1 million for one year at LIBOR + 1%, then renew the credit annually
Which of the following statements is most correct? The first payment under a 3-year, annual payment, amortized loan for $1,000 will include a smaller percentage (or fraction) of interest if the interest rate is 5 percent than if it is 10 percent. If you are lending money, then, based on effective interest rates, you should prefer to lend at a 10 percent nominal, or quoted, rate but with semiannual payments, rather than at a 10.1 percent nominal rate with annual payments. However, as a borrower you should prefer the annual payment loan. The value of a perpetuity (say for $100 per year) will approach infinity as the interest rate used to evaluate the perpetuity approaches zero. Statements a, b, and c are all true. Statements b and c are true.
A borrower can obtain an 80% loan with an 8% interest rate and monthly payments. The loan is to be fully amortized over 25 years. Alternatively, he could obtain a 90% loan at an 8.5% rate with the same loan term. The borrower plans to own the property for the entire loan term. solve with finanical calucltor What is the incremental cost of borrowing the additional funds? How would your answer change if 2 points were charged on the 90% loan? Would your answer to part (b) change if the borrower planned to own the property for only 5 years?

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