3 Your firm just received a loan from the bank and you want to see if...
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3 Your firm just received a loan from the bank and you want to see if it was good investment (assume your interest payments happen annually and the principal payment is due at the end. So, for example, if you borrow $50 at 10% interest for three years, you will pay $5 at the end of year 1, $5 at the end of year 2, and $55 at the end of year 3). a. Suppose you borrowed $100 for a year at a competitive interest rate of 6%. What is the present value of total payments (interests and principal) to the bank? To compute this present value, use the discount rate r = 6% (as this is the competitive market rate, you could receive yourself if you wish). b. Suppose instead you borrowed $200 for two years, at 7%. What is the present value of interests and principal payments? (use r = 7% this time, as this is competitive rate). c. What if you borrowed $350 for three years at 10% ? (use r = 10%) d. What is the pattern? 3 Your firm just received a loan from the bank and you want to see if it was good investment (assume your interest payments happen annually and the principal payment is due at the end. So, for example, if you borrow $50 at 10% interest for three years, you will pay $5 at the end of year 1, $5 at the end of year 2, and $55 at the end of year 3). a. Suppose you borrowed $100 for a year at a competitive interest rate of 6%. What is the present value of total payments (interests and principal) to the bank? To compute this present value, use the discount rate r = 6% (as this is the competitive market rate, you could receive yourself if you wish). b. Suppose instead you borrowed $200 for two years, at 7%. What is the present value of interests and principal payments? (use r = 7% this time, as this is competitive rate). c. What if you borrowed $350 for three years at 10% ? (use r = 10%) d. What is the pattern? 3 Your firm just received a loan from the bank and you want to see if it was good investment (assume your interest payments happen annually and the principal payment is due at the end. So, for example, if you borrow $50 at 10% interest for three years, you will pay $5 at the end of year 1, $5 at the end of year 2, and $55 at the end of year 3). a. Suppose you borrowed $100 for a year at a competitive interest rate of 6%. What is the present value of total payments (interests and principal) to the bank? To compute this present value, use the discount rate r = 6% (as this is the competitive market rate, you could receive yourself if you wish). b. Suppose instead you borrowed $200 for two years, at 7%. What is the present value of interests and principal payments? (use r = 7% this time, as this is competitive rate). c. What if you borrowed $350 for three years at 10% ? (use r = 10%) d. What is the pattern?
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Answer rating: 100% (QA)
a The present value of total payments interest and principal can be calculated using the formula PV ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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