The FFR is an important influence on other interest rates, like those on car loans and home loans, because the bank's opportunity cost of lending money to you is that it can't lend on the federal funds market and collect that interest. Imagine you run a bank and the FFR is 2% and will stay 2% for the next 3 years. You are considering lending Anqi $10,000 as a car loan but want to figure out how much interest you could have gotten by lending in the federal funds market instead. How much interest would you accumulate in 3 years from lending at 2% interest? $ answer should be a little more than $600 since the interest will compound. Assume it compounds annually like we always do.) (The

The FFR is an important influence on other interest rates, like those on car loans and home loans, because the bank's opportunity cost of lending money to you is that it can't lend on the federal funds market and collect that interest. Imagine you run a bank and the FFR is 2% and will stay 2% for the next 3 years. You are considering lending Anqi $10,000 as a car loan but want to figure out how much interest you could have gotten by lending in the federal funds market instead. How much interest would you accumulate in 3 years from lending at 2% interest? $ answer should be a little more than $600 since the interest will compound. Assume it compounds annually like we always do.) (The

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 14P

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Similar questions

You see that First National Bank is willing to make you a four-year $40,000 car loan with an interest rate of 4.2%. However, the same bank will charge you 16.5% interest on a credit card that it issues. Why is the interest rate on the credit card so much higher than the interest rate on the car loan?
To make Auto loan look more attractive than they really are, some banks advertise that their rates are higher than their competitor’s rates; however, the some automotive companies says that their rate is a simple interest rate. If a person deposits Php 80 000 at 12 % per year simple interest, what compound interest rate would yield the same amount of money in 3 years? a. 8.03 % per year b. 10.79 % per year c. 7.71 % per year d. 9.13 % per year
Tai Credit Corp. wants to earn an effective annual return on its consumer loans of 16.5 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers? Explain why this rate is misleading to an uninformed borrower.
Your firm sells for cash only, but it is thinking of offering credit, allowing customers 90 days to pay. Customers understand the time value of money, so they would all wait and pay on the 90th day. To carry these receivables, you would have to borrow funds from your bank at a nominal 7%, daily compounding based on a 360-day year. You want to increase your base prices by exactly enough to offset your bank interest cost. To the closest whole percentage point, by how much should you raise your product prices? Do not round intermediate calculations. Round your answer to the nearest whole number.
You have decided to buy a car with price tag of $30,000 but you are able to negotiate the price down to $28,000. You have $1,000 saved, so you need to borrow $27,000 in a 5-year loan from your bank (your bank offers lower rates than the auto-dealer) at a 3% APR (annual rate). How much will you owe to the bank after 2 years?
You want to buy a $170000 home. You plan to pay $51000 as a down payment, and take out a 15 year loan at 5.25% interest for the rest. After 6 years, you decide to pay off the entire loan.a) What is the amount of the payment?$ b) What is the outstanding principal after 6 years?$c) If the bank charges 2 points on the loan, what is the amount charged for points?$d) If the bank charges 2 points on the loan, what is the true interest rate?$ TVM SOLVER
You just received an offer in the mail to transfer your $5,000 balance from your current credit card, which charges an annual rate of 18.7 percent, to a new credit card charging a rate of 5.9 percent. You plan to make payments of $250 a month on this debt. How many fewer payments will you have to make to pay off this debt if you transfer the balance to the new card?
Your firm needs to borrow $1.0 million for one year. The firm has no other short term borrowings and it's combined state and federal tax rate is 25%. Your banker offers several lending alternatives. Which one will you choose? Select one: A)6.50% simple interest with a 20.00% compensating balance b) . 8.25% simple interest c) . 7.00% simple interest with a 15.00% compensating balance d) . 8.25% discount interest
Hendo Corp. can borrow from its bank using a one year (a) simple interest loan with an 11.3% quoted rate and no compensating balance or (b) a discount interest loan with a quoted rate equal to 9.9% that requires a 15% compensating balance. What is the EAR of the lower cost loan? Hendo Corp. normally tries to keep its checking account balance close to $0.
n this economy, there are 10,000 borrowers. Each person borrows $100 for a 1 year loan. For the lender not to make a loss, the lender must set an interest rate such that they earn at least as much as their outside option of not lending to people from all borrowers that did not default in this economy. In this case, the outside option is the risk-free interest rate on a 1-year US Treasury securtiy. The 1-year USTS pays annual interest rate of i = 0.03. What is the minimum interest rate that the lender will charge to borrow money in this economy
You want to buy a $170000 home. You plan to pay $34000 as a down payment, and take out a 20 year loan at 4.5% interest for the rest. After 14 years, you decide to pay off the entire loan.a) What is the amount of the payment? b) What is the outstanding principal after 14 years?c) If the bank charges 3.5 points on the loan, what is the amount charged for points?d) If the bank charges 3.5 points on the loan, what is the true interest rate?
The procedure banks use to compute continuously compounded interest is similar to the process we used to derive a differential equation. Suppose several banks claim to be giving 5% annual interest and that you have $1000 to deposit. A bank that compounds twice yearly really gives 2.5% interest twice. How much would you have after a year from this bank? How much better is this than a bank with no compounding?