Assume you are comparing interest rates on car loans. Which is the most expensiv
ID: 2796417 • Letter: A
Question
Assume you are comparing interest rates on car loans. Which is the most expensive loan? oan A has a stated rate of 8.5% with semi-annual co Loan B has a stated rate of 8.48% with monthly compou Loan C has a stated rate of 8.43% with daily co 4. compounding a. L b. C. which of the following statement is FALSE? r than 1, it implies that net working capital (NWCy is lower 5, zero. -b. When equity multiplier is equal to 1, Return on Assets (ROA) is equal to Return on C. A big drop from the current ratio to the quick ratio often signifies a problem with an d. Total asset turnover indicates how effectively a firm is utilizing all of its assets to e. Higher receivables turnover ratio indicates a liberal credit policy. Equity (ROE). inventory account. generate sales. The higher the degree of financial leverage employed by a firm, the higher the probability that the firm will encounter financial distress.. TRUE(A)/FALSE (B) 6. 7. If yield to maturity is higher than the coupon rate, bond price will sell at a TRUE (A)/FALSE (B) 8, HL Computer has just issued a 3.65% annual coupon bond-with a $1,000 face value, maturing in 30years, while Pear Inc. just issued a bond with a 3.8% coupon rate. If each bond sold initially at its $1000 par value, what is the yield to maturity on each bond? a. HL Computer's YTM = 3.12% ; b, HL Computer's YTM = 3.65% Pear Inc.'s YTM = 3.55% c. HL Computer's YTM = 6.24% ; d, HL Computer's YTM = 3.65% ; e. Cannot solve without further information Pear Inc.'s YTM = 3.80% Pear Inc.'s YTM = 7.60% Pear Inc.'s YTM = 3.80%Explanation / Answer
1. Effective interest rate
8.5% semi annual = (1+(0.085/2)2 - 1 = 0.08680 , 8.68%
8.48% monthly = (1+(0.0848/12)12 -1 = 0.08817 , 8.8817%, is the expensive loan
8.43% daily = (1+(0.0843/365)365 - 1 = 0.08794 , 8.794%
2. Answer C as the current and quick ratios does not indicate the inventory account.
3. true, as the firm is financing its assets using more of debt and liabilities, indicating financial distress.
4. False, if YTM is greater than the coupon rate, the bond is selling at a discount.
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