Response for Hw1

 Answer for Hw1 Essay

Corporate and business Finance Home Wok

Chapter 4

Q1: Simple Interest versus compound Interest First City Financial institution pays 9 percent basic interest on its savings account balances, while Second Town Bank compensates 9 percent interest exponentially boosted annually. In the event you made a $5, 500 deposit in each bank, how much more income would you gain from your Second City Banking account at the end of 10 years? A: First Town Bank: 5000*(1+10*0. 09)=9500

Second City Financial institution: 5000*(1+0. 09)10=11837

11837-9500=2337

So we will earn more $2, 337 from Second City Bank-account at the end of 10 years.

Q17: Calculating EAR CANAL First Nationwide Bank costs 10. 1% compounded regular monthly on it is business loans. Initially United Traditional bank charges 15. 4 percent compounded semiannually. As a potential borrower, where bank will you go for a fresh loan? A: First National Bank: EAR=1+0. 1011212-1=0. 1058

First Combined Bank: EAR=1+0. 10422-1=0. 1067

So as any borrower, I would really like to choose the Initially National Financial institution to go for any new bank loan.

Q23: Establishing Annuities You propose to save for retirement above the next 30 years. To do this, you are going to invest $700 a month in a stock account and $300 a month within a bond account. The returning of the inventory account is usually expected to always be 10 percent, and the bond consideration will pay six percent. At the time you retire, you are going to combine your hard earned money into a merchant account with a great 8 percent return. How much can you take away each month from your account if, perhaps a 25-year withdrawal period? A: FVStock=700*(1+0. 112)360-10. 112=1582341. 55

FVbond=300*(1+0. 0612)360-10. 0612=301354. 51

PVA=1582341. 55+301354. 51=C*1-1(1+0. 0812)3000. 0812=14538. 67

To help you withdraw $14538. 67 monthly from the accounts assuming a 25-year revulsion period.

Q30: Balloon Repayments Audrey Sanborn has just organized to purchase a $450, 500 vacation house in the Bahamas with a 20 percent down payment. The mortgage has a 7. 5% stated annual interest rate, exponentially boosted monthly, and calls for similar monthly payments over the next 30 years. Her initially payment will be due one month from today. However , the mortgage comes with an eight-year go up payment, which means that the balance from the loan must be paid off towards the end of season 8. There have been no different transaction costs or fund charges. Simply how much will Audrey's balloon payment be in eight years? A: The home loan = 450000*0. 8=360000

360000=C*1-1(1+0. 07512)3600. 07512 => C=2517. 17

Since we have knowledgeable 8 years, so the left month is usually 264

Financial loan balance = 2517. 17*1-1(1+0. 00625)2640. 00625=325001. 45

Thus Audrey's balloon payment will be $325001. 45 in eight years.

Q38: Calculating Mortgage Payments You require a 30-year, fixed-rate mortgage to get a new home for $250, 000. Your mortgage loan bank is going to lend the money at a six. 8 percent APR with this 360-month loan. However , you may only afford monthly payments of $1, 2 hundred, so you offer to pay off any remaining loan balance towards the end of the financial loan in the form of a single balloon payment. How large will this go up payment must be for you to keep your monthly payments for $1, 2 hundred? A: the monthly payment can be 1200, thus

Loan=1200*1-1(1+0. 06812)3600. 06812=184070. 20

250000-184070=65930

So the as well as the payment is definitely $65930 that you have to be so that you can keep the monthly installments at $1200.

Chapter your five

Q20: Comparing Investment Standards You really are a senior manager at Poeing Aircraft and have been authorized to spend up to $400, 000 for projects. Three projects you are considering have the following characteristics:

Job A: Primary investment of $280, 1000. Cash flow of $190, 500 at 12 months 1 and $170, 500 at season 2 . This can be a grow expansion project, where the needed rate of return can be 10 percent.

Task B: First investment of $390, 1000. Cash flow of $270, 000 at 12 months 1 and $240, 1000 at year 2 . This can be a new application project, where required level of returning is 20 percent.

Project C: Initial expense of $230, 000. Income of $160, 000 for year you and $190, 000 by year2. This is a market growth project, where the required...

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