BUSINESS COLLEGE

Biochemical Corp. requires $720,000 in financing over the next three years. The firm can borrow the funds for three years at 10.20 percent interest per year. The CEO decides to do a forecast and predicts that if she utilizes short-term financing instead, she will pay 8.50 percent interest in the first year, 12.90 percent interest in the second year, and 9.75 percent interest in the third year. Assume interest is paid in full at the end of each year.Required:
a. Determine the total interest cost under each plan.
b. Which plan is less costly?

i. Short-tem variable-rate plan
ii. Long-term fixed-rate plarn

Answers

Answer 1
Answer:

Answer:

Long-term fixed-rate plan-$220,320.00  

Short-term variable-rate plan-$224,280.00  

The long-term fixed-rate plan is less costly as it has a lower interest expense

Explanation:

Total interest under the first plan=principal amount*interest rate*3 years

principal amount is $720,000

interest rate is 10.20%

total interest expense=$720,000*10.20%*3=$220,320.00  

Interest expense under second plan=($720,000*8.50%)+($720,000*12.90%)+($720,000*9.75%)=$224,280.00  

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Suppose that a 5-year Treasury bond pays an annual rate of return of 1.3%, and a 5-year bond of the fictional company Risky Investment Inc. pays an annual rate of return of 7.1%. The risk premium on the Risky Investment bond is __________ percentage points.Consider a decrease in the annual rate of return on the Risky Investment bond from 7.1 percent to 5.5 percent. Such a change would _________ the interest rate spread on the Risky Investment bond over Treasuries to ___________ .

Which of the following explains the decrease in the annual rate of return on the Risky Investment bond?

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3. The expected default rate on the Treasury bond has decreased.
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Answers

Answer:

a. The risk premium on Risky Investment bond = 5.8

b. Such a change would decrease/reduce 4.2%

c. The expected default rate on the Risky Investment bond has decreased (1).

Explanation:

a. The risk premium on a risky investment is equal to the total return on a risky investment less the return on the risk free asset. The risky asset here gives an annual return of 7.1% while the risk free rate is 1.3%. So, the risk premium on the risky asset for additional risk is,

  • 7.1 - 1.3 = 5.8%

b. A reduction in the annual return on the risky asset will decrease/reduce the interest rate spread which is equal to the difference between the return of the risky and risk free asset. The new spread will be equal to,

  • 5.5 - 1.3 = 4.2%

c. The risk free rate is expected to be the same as no information is provided. Besides, a fall in annual rate of risky investment means that there is a reduction in the riskiness of such an investment and that would mean that there is a reduction in the default risk in turn leading to a reduction in compensation for default and the default rate.

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c)In the debit side
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Answers

Answer:

b)At the top of T account

Explanation:

The account name is always written at the top of a T account. The account name is also the account title.

A T account has a standard format. The title or the name is what differentiates them.

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Answers

Answer:

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Answers

Answer:

a) Jane currently has $150,000 x (1 + 8%)¹⁰ = $323,838.75 in her account

in 20 years, she will have $323,838.75 x (1 + 5%)²⁰ = $859,240.61

b) we can use the future value of an annuity formula to calculate Hal's annual contribution.

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Answers

Answer: True i think

Explanation:

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Answers

Answer:

The correct answer is letter "D": stimuli, brain, brain–mind interface, mind.

Explanation:

The Let Me Learn (LML) Process is an explanation of what steps are followed in our brain while learning something. At first, there are stimuli captured by our senses. Our senses regulate the stimuli and let the stimuli enter our brain. The brain must translate the stimuli thanks to our working memory staying in the brain-mind interface to finally store the translated information into the mind and use the information as necessary.

Answer:

The correct answer is letter "D": stimuli, brain, brain–mind interface, mind.

Explanation:

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