Suppose you are considering taking consumer loan from bank for one year. Usually, for short-term loans, the bank offers 8 percent interest that compounds annually. Your credit application has been viewed by a few banks and two of them replied; Bank ALFA offers you a loan at 8 percent annual rate-interest payment by the end of year, and Bank BETA offers a loan with the same annual interest rate, but interest payment is 2 percent by the end of each quarter. Which loan do you prefer? Why? Sadia Corporation, based in UAE, produces meat and milk products. The company sold old machinery for 50,000 UAE dirham and decided to put this amount in a term deposit, which usually pays 5 percent annually.A. Calculate the amount of money that Sadia Corporation will receive after 2, 4, and 7 years of deposit.B. Re-calculate results from part (a) if bank offers 5 percent annual compound interest on semi-annual basis.C. Re-calculate results from part (a) if bank offers 5 percent annual simple interest rate basis. General Motor Company sold 25000 units of the new model of “GMC Yukon” this year and expecting to increase by 25 percent per year. What would be expected sales of this model during each of the next 3 years? You lend a friend $10,000, for which your friend will repay you $15,000 at the end of 5 years. What interest rate are you charging your “friend”? To pay for your child’s education, you wish to have accumulated $25,000 at the end of 15 years. To do this, you plan on depositing an equal amount into the bank at the end of each year. If the bank is willing to pay 6 percent compounded annually, how much must you deposit each year to reach your goal? What is the present value of an ordinary annuity of $1,000 per year for 9 years discounted back to the present at 10 percent? What would be the present value if it were an annuity due? John won the lottery on Monday and can take either $50,000 per year for 20 years, or $500,000 today. Bill won the same lottery on Tuesday and has the same options for receiving the cash. A well respected financial advisor is hired by both John and Bill. The advisor recommends that John take the $50,000 per year for 20 years but advises Bill to take the $500,000 up front payment. How is it possible to give different advice to two clients regarding the exact same cash flows? What is the future value of an ordinary annuity of $1,000 per year for 9 years compounded at 10 percent? What would be the future value if it were an annuity due?

Answered: Suppose you are considering taking…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter22: Providing And Obtaining Credit

Section: Chapter Questions

Problem 3P: Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of...

See similar textbooks

Related questions

Question

Suppose you are considering taking consumer loan from bank for one year. Usually, for short-term loans, the bank offers 8 percent interest that compounds annually. Your credit application has been viewed by a few banks and two of them replied; Bank ALFA offers you a loan at 8 percent annual rate-interest payment by the end of year, and Bank BETA offers a loan with the same annual interest rate, but interest payment is 2 percent by the end of each quarter. Which loan do you prefer? Why?

Sadia Corporation, based in UAE, produces meat and milk products. The company sold old machinery for 50,000 UAE dirham and decided to put this amount in a term deposit, which usually pays 5 percent annually.

A. Calculate the amount of money that Sadia Corporation will receive after 2, 4, and 7 years of deposit.

B. Re-calculate results from part (a) if bank offers 5 percent annual compound interest on semi-annual basis.

C. Re-calculate results from part (a) if bank offers 5 percent annual simple interest rate basis.

General Motor Company sold 25000 units of the new model of “GMC Yukon” this year and expecting to increase by 25 percent per year. What would be expected sales of this model during each of the next 3 years?

You lend a friend $10,000, for which your friend will repay you $15,000 at the end of 5 years. What interest rate are you charging your “friend”?

To pay for your child’s education, you wish to have accumulated $25,000 at the end of 15 years. To do this, you plan on depositing an equal amount into the bank at the end of each year. If the bank is willing to pay 6 percent compounded annually, how much must you deposit each year to reach your goal?

What is the present value of an ordinary annuity of $1,000 per year for 9 years discounted back to the present at 10 percent? What would be the present value if it were an annuity due?

John won the lottery on Monday and can take either $50,000 per year for 20 years, or $500,000 today. Bill won the same lottery on Tuesday and has the same options for receiving the cash. A well respected financial advisor is hired by both John and Bill. The advisor recommends that John take the $50,000 per year for 20 years but advises Bill to take the $500,000 up front payment. How is it possible to give different advice to two clients regarding the exact same cash flows?

What is the future value of an ordinary annuity of $1,000 per year for 9 years compounded at 10 percent? What would be the future value if it were an annuity due?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.