Course Project 1

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Bus 379 Course Project March 31, 2013 Task 1 1. National First with an APR of 3.25%(Prime Rate) +6.75%=10% The ERA=(1+10%/2)^2 – 1= 10.25% Regions Best 13.17 APR compounded monthly. The ERA = (1+13.17%/12)^12 – 1= 13.99% 2. I would recommend National First Bank, the ERA with NFB is 10.25% and the ERA with Regions Best is 13.99%. National First Bank is calculated semiannually so it is only twice a year but Regions Best is compounded monthly. The APR with National Best is low even if it is Prime. 3. The loan amount is $6,950,000, interest rate is 8.6% APR over 5 years. To do the calculation we work with (loan amount)*(interest rate)/(years) N=60 I=0.7167 PV= 6,950,000 Payment =x The monthly payment for…show more content…
Most of the time the price of the preferred dividends is higher than the common stock because there is more risk for investors but there is also more payoff if it does well. 4. 1.50 * (1+10%)=1.65 1.65 / (10%-1%)= $18.33 IF the required rate of return increases from 8.1% to 10% then the current share price of common stock with decrease from $21.41 to $18.33. As the price of the stock increases this can be riskier for the investor. But with higher risk the returns should be higher as well with dividends. If the dividends are higher this can boost the confidence of others to buy more stocks as there are good returns with the company. Task 3 1. Annual Rate = 7.5% Current price of bond = $1062 Term 20 years Par value of bond $1000 Annual interest $75.00 Semi-annual interest $37.50 The coupon rate AirJet Parts sets on new bonds would be 6.92% 2. The YTM rate is the rate of return that could be earned if held until the maturity date. The coupon rate is usually a fixed and is the known rate of the bond. 3. The credit risk on a bond is the chances that the company will default on the bond. The amount the investor makes is lower. Inflation rate risk, when inflation goes up, the price of the bond usually goes down. Interest rate risk the price of the bonds changes because of the increase and decrease of the interest rates. 4. File quarterly
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