Question: This question illustrates what is known as discount interest Imagine
This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $25,000 for one year. The interest rate is 13 percent. You and the lender agree that the interest on the loan will be .13 3 $25,000 5 $3,250. So the lender deducts this interest amount from the loan up front and gives you $21,750. In this case, we say that the discount is $3,250. What’s wrong here?
Answer to relevant QuestionsAn insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child at the child’s birth. The details of the policy are as follows: The purchaser (say, the ...Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 25 years ...Locate the Treasury issue in Figure 7.4 maturing in August 2029. Is this a note or a bond? What is its coupon rate? What is its bid price? What was the previous day’s asked price?Suppose your company needs to raise $45 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 6 percent, and you’re evaluating two issue alternatives:a 6 ...Staal Corporation will pay a $3.40 per share dividend next year. The company pledges to increase its dividend by 4.5 percent per year indefinitely. If you require a return of 11 percent on your investment, how much will you ...
Post your question