Questions from Corporate Finance

Q: The interest rate on a one-year loan is quoted as

The interest rate on a one-year loan is quoted as 11 percent plus two points (see the previous problem). What is the EAR? Is your answer affected by the loan amount? Previous problem: You are looking...

Q: Two banks in the area offer 30-year, $240

Two banks in the area offer 30-year, $240,000 mortgages at 6.8 percent and charge a $2,300 loan application fee. However, the application fee charged by Insecurity Bank and Trust is refundable if the...

Q: This problem illustrates a deceptive way of quoting interest rates called add

This problem illustrates a deceptive way of quoting interest rates called add-on interest. Imagine that you see an advertisement for Crazy Judy’s Stereo City that reads something like this: “$1,000 In...

Q: This is a classic retirement problem. A time line will help

This is a classic retirement problem. A time line will help in solving it. Your friend is celebrating her 35th birthday today and wants to start saving for her anticipated retirement at age 65. She wa...

Q: Your Christmas ski vacation was great, but it unfortunately ran a

Your Christmas ski vacation was great, but it unfortunately ran a bit over budget. All is not lost: You just received an offer in the mail to transfer your $10,000 balance from your current credit car...

Q: An insurance company is offering a new policy to its customers.

An insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child at the child’s birth. The details of the policy are as follows: T...

Q: You have just arranged for a $750,000 mortgage to

You have just arranged for a $750,000 mortgage to finance the purchase of a large tract of land. The mortgage has an 8.1 percent APR, and it calls for monthly payments over the next 30 years. However,...

Q: A financial planning service offers a college savings program. The plan

A financial planning service offers a college savings program. The plan calls for you to make six annual payments of $9,000 each, with the first payment occurring today, your child’s 12th birthday. Be...

Q: Companies often try to keep accounting earnings growing at a relatively steady

Companies often try to keep accounting earnings growing at a relatively steady pace, thereby avoiding large swings in earnings from period to period. They also try to meet earnings targets. To do so,...

Q: Your financial planner offers you two different investment plans. Plan X

Your financial planner offers you two different investment plans. Plan X is a $20,000 annual perpetuity. Plan Y is a 20-year, $28,000 annual annuity. Both plans will make their fi rst payment one year...