Question
Suppose you are a loan officer for a bank. A startup company has qualified for a loan. You are pondering various proposals for repayment. Requirement
Suppose you are a loan officer for a bank. A startup company has qualified for a loan. You are pondering various proposals for repayment.
Requirement 1. Lump sum of $240,000 four years hence. How much will you lend if your desired rate of return is (a) 88percent, compounded annually, and (b) 12percent, compounded annually? (Round your final answers to the nearest whole amount.)
What is the formula you will need to answer this question for each of the two scenarios (a. and b.) Provide the formula that calculate Present Value.
1a. Assume that your desired rate of return is 88percent, compounded annually.$_____
1b. Assume that your desired rate of return is 12percent, compounded annually.$_________
Requirement 2. Repeat number 1, but assume that the interest rates are compounded semiannually.
What is the formula you will need to answer this question for each of the two scenarios (a. and b.) Provide the formula that calculate Present Value.
2a. Assume that your desired rate of return is 88percent, compounded semiannually.$____
2b. Assume that your desired rate of return is12percent, compounded semiannually.$____
Requirement 3. Suppose the loan is to be paid in full by equal payments of $60,000 at the end of each of the next four years. How much will you lend if your desired rate of return is (a)88percent, compounded annually, and (b)12percent, compounded annually?
What is the formula you will need to answer this question for each of the two scenarios (a. and b.) Provide the formula that calculate Present Value.
3a. Assume that your desired rate of return is 88percent, compounded annually.$____
3b. Assume that your desired rate of return is 12 percent, compounded annually.$_____
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