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W09 136a effective interest problem version 1

W09 136a effective interest problem version 1 - UCSB 136A...

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UCSB Version 1 136A, Barrett Carrere Name and perm # AM/PM? Answer the questions below. Type # of periods 9.00% 11.00% 2.00% PV Single Sum 3 0.772180 0.731190 0.942320 1/(1+I)^n or (1+i)^-n PV Single Sum 4 0.708430 0.658730 0.923850 PV Ordinary Annuity 3 2.531290 2.443710 2.883880 [1-{1/(1+i)^n}]/i PV Ordinary Annuity 4 3.239720 3.102450 3.807730 PV Annuity Due 3 2.759110 2.712520 1.980390 1+{[1-{1/(1+i)^n-1}]/i} PV Annuity Due 4 3.531290 3.443710 2.941560 Blue Dog Inc. needs to raise money to buy Red Dog LLC. On 11/30/08 Blue negotiates with Fat Cat a 3 year loan for \$1,000,000 at 9% interest. Under the terms of the loan, Fat Cat will give Blue \$1,000,000 on 1/1/09 and the Blue is required to pay the \$1,000,000 back on 12/31/11, three years later. On 12/31/08, before Fat Cat signs the loan and before they lend any money to Blue, Fat Cat decides that 9% is not enough interest. Fat Cat tells Blue that the deal is off unless Blue pays 11% interest, which Fat Cat believes is the fair market rate for this loan. Blue agrees and instead of drafting a new note Fat Cat discounts the note that was initially negotiated.

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1) Create an effective interest table for this debt based on all bonds sold. (38 points) -- If you forget how to do, show calculations for interest expense and discount amortization for partial credit.
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W09 136a effective interest problem version 1 - UCSB 136A...

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