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EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202778
Author: DeMarzo
Publisher: PEARSON CUSTOM PUB.(CONSIGNMENT)
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Textbook Question
Chapter 5, Problem 2P
Which do you prefer: a bank account that pays 5% per year (EAR) for three years or
a. An account that pays 2 ½%every six months for three years?
b. An account that pays 7 ½ % every 18 months for three years?
c. An account that pays ½%per month for three years?
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Students have asked these similar questions
Suppose your credit card has a balance of $6,200 and an annual interest rate of 15%. You decide to pay off the balance over three years. If there are no further purchases charged to the card,
(a) How much must you pay each month?
(b) How much total interest will you pay?
Now suppose decide to pay off the balance over one year rather than three.
(c) How much more must you pay each month?
(d) How much less will you pay in total interest?
P
n
Use PMT =
- nt
1 -
1+
n
to determine the payment
amount.
Round to the nearest dollar.
.....
А. (а) $224
(b) $616
(c) $344 more per month;
(d) $1,248 less in total interest
В. (а) $224
(b) $1,864
(c) $344 more per month;
(d) $1,248 less in total interest
С. (а) $215
(b) $1,540
(c) $345 more per month
(d) $1,020 less in total interest
D. (a) $215
(b) $520
(c) $345 more per month
(d) $1,020 less in total interest
1. How much should you deposit into an account that pays 3.6% compounded monthly if
you want to have $15,000 ten years from now? Round your answer to the nearest cent.
2. An investment of $4,500 was deposited into an account that pays 3.7% compounded
daily. How much money will be in the account 5 years from now? Round your answer to
the nearest cent.
3. An amount of $12,000 is deposited into an account with annual interest of 4.2%
compounded monthly. In how many years will the amount grow to $18,000? Round y
answer to two decimal places.
Suppose you want to borrow $90,000 and you find a bank offering a 20-year loan with an APR of 5%.
a. Find your regular payments if you pay n = 1, 12, 26, 52 times a year.
b. Compute the total payout for each of the loans in part (a).
c. Compare the total payouts computed in part (b).
a. The payment for n = 1 would be $
The payment for n = 12 would be $
The payment for n = 26 would be $
The payment for n= 52 would be $
(Do not round until the final answer. Then round to the nearest cent as needed.)
Chapter 5 Solutions
EBK CORPORATE FINANCE
Ch. 5.1 - Prob. 1CCCh. 5.1 - Prob. 2CCCh. 5.2 - How can you compute the outstanding balance on a...Ch. 5.2 - What is an amortizing loan?Ch. 5.3 - What is the difference between a nominal and real...Ch. 5.3 - How do investors expectations of future short-term...Ch. 5.4 - Prob. 1CCCh. 5.4 - How do taxes affect the interest earned on an...Ch. 5.5 - What is the opportunity cost of capital?Ch. 5.5 - Why do different interest rates exist, even in a...
Ch. 5 - Your bank is offering you an account that will pay...Ch. 5 - Which do you prefer: a bank account that pays 5%...Ch. 5 - Prob. 3PCh. 5 - Prob. 4PCh. 5 - You are considering moving your money to a new...Ch. 5 - Prob. 6PCh. 5 - Prob. 7PCh. 5 - You can earn 50 in interest on a 1000 deposit for...Ch. 5 - Prob. 9PCh. 5 - Prob. 10PCh. 5 - Prob. 11PCh. 5 - Prob. 12PCh. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - You have just sold your house for 1,000,000 in...Ch. 5 - Prob. 16PCh. 5 - Your mortgage has 25 years left, and has an APR of...Ch. 5 - Prob. 18PCh. 5 - Prob. 19PCh. 5 - Prob. 20PCh. 5 - Prob. 21PCh. 5 - Prob. 22PCh. 5 - The mortgage on your house is five years old. It...Ch. 5 - You have credit card debt of 25,000 that has an...Ch. 5 - Prob. 25PCh. 5 - Prob. 26PCh. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Suppose the term structure of risk-free interest...Ch. 5 - Prob. 30PCh. 5 - Prob. 31PCh. 5 - Suppose the current one-year interest rate is 6%....Ch. 5 - Figure 5.4 shows that Johnson and Johnsons...Ch. 5 - Prob. 34PCh. 5 - Prob. 35PCh. 5 - Prob. 36PCh. 5 - Your best friend consults you for investment...Ch. 5 - Suppose you have outstanding debt with an 8%...Ch. 5 - In the summer of 2008, at Heathrow Airport in...Ch. 5 - Your firm is considering the purchase of a new...Ch. 5 - Prob. 41P
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