Concept explainers
To think critically about: Whether a senior or a freshman gets the bigger subsidy.
Introduction:
The act of providing money, property, or other material to the other party in exchange for the payment that has to be made in future is said to be a loan. The debtor has to repay the principal amount long with the interest fixed by the creditor. The loan that is paid by the federal government while the student is in school is a subsidized loan.
To think critically about: Valuing the subsidy on a subsidized Stafford loan.
Introduction:
The act of providing money, property, or other material to the other party in exchange for the payment that has to be made in future is said to be a loan. The debtor has to repay the principal amount long with the interest fixed by the creditor. The loan that is paid by the federal government while the student is in school is a subsidized loan.
Want to see the full answer?
Check out a sample textbook solutionChapter 6 Solutions
Fundamentals of Corporate Finance, 2 Semester Access, FIN 3043
- 4. Present value Finding a present value is the reverse of finding a future value. A. is the process of calculating the present value of a cash flow or a series of cash flows to be received in the future. B. Which of the following investments that pay will $17,500 in 8 years will have a lower price today? The security that earns an interest rate of 4.00%. The security that earns an interest rate of 6.00%. C. Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 5.40%. Assuming that both investments have equal risk and Eric’s investment time horizon is flexible, which of the following investment options will exhibit the lower price? An investment that matures in four years An investment that matures in five years D. Which of the following is true about present value calculations? Other things remaining equal, the…arrow_forwardi need answer ASAP! my question is about corporate finance. An annuity and an annuity due with the same number of payments have the same future value if r = 10%. Which one has the higher payment? a-the annuity due has the higher payment b-the annuity has the higher payment c-annuity and annuity due cannot have the same future value d-there is no way to tell which has the higher payment e-they both must have the same payment since the future values are the samearrow_forwardExplain ‘Principle 5’: Individuals respond to incentives, and outline one method that is used to reduce the agency problem. Briefly explain the difference between an ‘annuity’ and a ‘perpetuity’. Briefly explain the impact that compounding interest, more often than annually, has on the future value, given an initial investment.arrow_forward
- 8. How do rising interest rates affect the size of real estate loans that lenders will advance?Again, be specific.arrow_forwardQuestion 5.A bank has borrowing needs at timeT >0. Show that by combining an FRAtrade today with a libor loan at timeT, the bank can today lock in its interest cost forthe periodTtoT+α. Does the borrowing bank need to buy or sell the FRA to do this?What is the fixed rate that the bank locks in?arrow_forward_______________________ happens when the economy is producing at its potential and unemployment is at the natural rate of unemployment. a) Stagflation b) The interest rate effect c) The foreign price effect d) Full employment GDP Question 2 1 / 1 point Melanie decided to save 20% of her annual earnings for 10 years so she would have a down payment for a house. After 5 years, what change in the economy would cause an increase in the purchasing power of the funds she has managed to save? a) stagflation b) depression c) deflation d) recession Question 3 1 / 1 point If the price level of what firms produce is rising across an economy, but the costs of production are constant, then: a) higher profits will induce expanded production. b) a majority of industries will start running into limits. c) increase in quantity produced won't be large. d) the maximum potential GDP will be exceeded. Question 4 1 / 1 point What term is used to describe the maximum quantity that…arrow_forward
- On subsidized Stafford loans, a common source of financial aid for college students, interest does not begin to accrue until repayment begins. Who receives a bigger subsidy, a freshman or a senior? Explain. Found in MBA 640 Finance, Economics and Decision Making. Chapter 3 concept question #5arrow_forwardQ5. If you were opening a savings account with compound interest, would you prefer an account that offers annual compounding, quarterly compounding, or daily compounding? Why? Q6. Why should investors consider common stocks as an investment vehicle if they have a long-term time horizon? Q7. Is online grocery shopping cheaper? Q8. What can you realistically do to improve your income level?Q9. If you have too many credit cards, what should you do? Q.10 What is the formula for calculating your net worth?arrow_forward4. I need help with multiple choice finance home work question All else equal, a project's NPV increases when: The discount rate increases. Each cash inflow is delayed by one year. All cash inflows occur during the last year of a project's life instead of periodically throughout the life of the project. The initial cost of a project increases. The discount rate decreases.arrow_forward
- Q8 You want to buy a $195,000 home. You plan to pay 10% as a down payment, and take out a 30 year loan for the rest. a.how much is the loan amount going to be ?$____b.what will your monthly payments be if the interest rate is 5%? $____c.what will your monthly payments be if the interest rate is 6%? $____arrow_forward13–14. After paying off a car loan or credit card, don’t remove this amount from your budget. Instead, invest in your future by applying some of it to your retirement account. How much would $450 invested at the end of each quarter be worth in 10 years at 4% interest? PROVIDE THE FOLLOWING FOR EACH PROBLEM N= I= PV= PMT= FV= C/Y= P/Y =arrow_forwardV. You want to save $2,000 today for retirement in 40 years. You have to choose between the two plans listed in (i) and (ii).(i) Pay no taxes today, put the money in an interest-yielding account, and pay taxes equal to 20% of the total amount withdrawn at retirement. (In the U.S., such an account is known as a regular individual retirement account, or IRA.)(ii) Pay taxes equivalent to 15% of the investment amount today, put the remainder in an interest-yielding account, and pay no taxes when you withdraw your funds at retirement. (In the U.S., this is known as a Roth IRA.)a. What is the expected present discounted value of each of these plans if the interest rate is 1%? 10%?b. Which plan would you choose in each case? Explain your logic clearlyarrow_forward
- PFIN (with PFIN Online, 1 term (6 months) Printed...FinanceISBN:9781337117005Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning