Course Project Part 1
Task 1: Assessing loan options for AirJet Best Parts, Inc.
1. Regions Best
(1+ .1317/12)^12 -1
EAR = 14%
(1+ (6.75+3.25)/2)^2 -1
EAR = 10.25%
2. Based on my calculations I would choose the National First loan because the EAR is only 10.25%. The EAR for the Regions Best loan is 14%. The ideal EAR for the company would be the smallest rate.
3. (1+8.6/12)^12 -1 = 8.95%. Monthly payment 8.95% of $6,950,000 = $622,025.
By taking a smaller amount loan will save them money that they will need to pay back in the end. If they don’t borrow enough they may end up closing because they ran out of money to ...view middle of the document...
1.50*(1+.01) / (.1204-.01)
3. Preferred Stock Price
1.5 / .1204
I would assume that the stockholder would want the current price to be higher than the preferred price because that would mean the stock is doing better than projected to be at that point in time.
4. If the dividends are increased the price of the stock will rise. If the required rate of return increases then it would lower the current price of the stock. So in theory if there is a positive change in dividend, then the stock price will increase. If there is a negative change then the stock price will decrease.
Task 3: Bond Evaluation
2. The coupon rate is the fixed rate of income which the bond provides in for the purchase of the bond. YTM is the annual interest rate which exists in the market to see if the coupon rate that is being given is overvalued, undervalued, or normal.
3. There is a higher price risk when the coupon rates are lower compared to the bond which has a higher coupon amount to the investor. If there is a higher coupon then you will se a higher YTM for the bond.
When the YTM is high then the coupon rate also needs to be high. Anyone who can invest somewhere else and earn that YTM if the coupon provided isn’t at least at the same level as the YTM.
The longer the maturity the higher the risk is of reinvestment. If the bond is higher maturity then you want to be sure that you receive the best coupon for the bond purchase.
a.) Keep enough assets to keep the principal amount of the bond.
c.) Make sure all borrowers keep jobs.
d.) Credit Reports.