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FINANCE 1. If you borrow \$10,000 at \$900 interest for one year, what is your effective interest cost for the following payment plans?

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FINANCE 1. If you borrow \$10,000 at \$900 interest for one year, what is your effective interest cost for the following payment plans? a. Annual payment b. Semi-annual payment c. Quarterly payment d. Monthly payment 2. Use the statement below to solve Problems 3 and 4. Ohlin, Meade, and Assoc. plans to borrow \$1 million for 12 months. Citibank gives the firm a stated rate of 10 percent interest. A. What is the effective rate of interest if the loan carries a simple 10 percent interest with a 20 percent compensating balance? B. What is the effective rate of interest if the above loan is an installment loan with 12 payments? 3. Kimberly Ford invested \$10,000 10 years ago at 16 percent, compounded quarterly. How much has she accumulated? 4. Mr. Sullivan is borrowing \$2 million to expand his business. The loan will be for ten years at 12% and will be repaid in equal quarterly installments. What will the quarterly payments be? 5. Samuel Johnson invested in gold U.S. coins ten years ago, paying \$216.53 for one-ounce gold "double eagle" coins. He could sell these coins for \$734 today. What was his annual rate of return for this investment? 6. You have an opportunity to buy a \$1,000 bond which matures in 10 years. The bond pays \$30 every six months. The current market interest rate is 8%. What is the most you would be willing to pay for this bond? 7 . State Street Corp. will pay a dividend on common stock of \$4.80 per share at the end of the year. The required return on common stock (Ke) is 13.2%. The firm has a constant growth rate of 7.2%. Compute the current price of the stock (Po).
8 . Madison Corporation has a \$1000 par value bond outstanding paying annual interest of 7%. The bond matures in 20 years. If the present yield to maturity for this bond is 9%, calculate the current price of the bond using annual compounding. Use annual analysis. 9. The Nickelodeon Manufacturing Co. has a series of \$1000 par value bonds outstanding. Each bond pays interest semi-annually and carries an annual coupon rate of 7%. Some bonds are due in three years while others are due in 10 years. If the required rate of return on bonds is 10%, what is the current price of: a) the bonds with 3 years to maturity? b) the bonds with 10 years to maturity? c) Explain the relationship between the number of years until a bond matures and its price.

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