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bankruptcy and don't want to dilute existing shares. It can also signal a commitment to increase output to rival firms.
Disadvantages - Increases the company's risk level. Company is more sensitive to economic downturns, interest rate variability, and changes in market conditions. Has to be re-paid. There is less risk appetite in making investment decisions as a result. Loan covenants have to be met. Assets may be taken as collateral if the firm cannot pay.
Explain the difference between subordinate debentures and debentures.
A subordinated debenture is a bond or debt obligation issued by a corporation that has junior priority status relative to other bondholders of the company in the event
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Atlanta Home Loan
Eind 2002 raakte Albert (Al) Fiorini steeds meer gefrustreerd en gedeprimeerd. In september 2002 had hij vrij genomen om weer naar school te gaan om zijn MBA te halen. Hij ging ervan uit dat het door hem opgerichte hypotheek verstrekking bedrijf door zijn medewerkers zou worden gerund. Het was nu duidelijk voor Al, dat de medewerkers zijn bedrijf probeerden af te schermen voor Al. En verbazingwekkend genoeg het was ze ook nog gelukt. Al betreurde het, ze hadden niet alleen zijn bezit afgepakt maar ze hebben mijn hele bedrijf gestolen. Terwijl ik 2500 kilometer weg was en bezig was met mijn studie voelde Al zich bijna machteloos om ze te stoppen. Hij heeft veel slapeloze
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Prof. Dr. Rainer Stachuletz
Corporate Fincance and
Chapter 3 The Concept of Present Value
The Casino.com Corporation
Casino.com Corporation is building a $25 million office building in Las Vegas and is financing the construction at an 80 percent loan-to-value ratio, where the loan is in the amount of $20,000,000. This loan has a ten-year maturity, calls for monthly payments, and is contracted at an interest rate of 8 percent.
Using the above information, answer the following questions.
1. What is the monthly payment?
2. How much of the first payment is interest?
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rent, children's fees, home loan, auto loan installments, other loan installments andinsurance premium. Household gadgets, white goods, festivals, family obligations and the like are included under the miscellaneous expenses.
Another vital aspect of personal financial management is personal debt management.
Personal Debt Management:
In order to keep track of pending payments and avoid falling into the debt trap, a number of aspects need to be considered.In case of auto loan, housing loan, personal loan and other loans one should keep account of the loan amount, the repayment period, monthly installment, interest reset frequency and the amount of loan already paid. If one wants to
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Assignment 2: Financial Project
Coming up with a plan to eliminate five years off of a home loan, in my opinion, the first thing to do is verify where you are on the schedule, and change one variable to measure its effect. The variable to be changed would be reducing the remaining amount of time on your loan from 25 years to 20. Next I would gather all the specific information on my loan, then change the amount of time left on my loan and determine the monthly principal and interest payment. The loan was originally for $141,000. The interest rate was 5.75% fixed. The principal and interest payment is $822.84. After sixty payments the remaining principal balance is $130,794.68
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A question of survival by Bribery
Summary of the case
Sam Zizmat had election business. He won a govt. construct where he was the low bidder. In order to implement this contract he needed sufficient fund for collecting this fund he considered different alternatives such as federal Agency, commercial bank and other financial institutions. During the evaluation process he found that the federal Agency claimed a consulting fee of 5% on the loan amount. However this consulting fee would go to political hack. A further point was that the market interest rate was 2% more than the change of Federal Agency. And Sam might not be able to meet the payment as their change was so much high. The
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Bridge loan is one of the types of short-term loan that often used by a firm to continuing the operation of the firm. It usually takes two weeks to 3 years period of times and bridging loan is only a temporary financial arrangement and will often be settles in a couple of months. Bridge loan is lending money to help the organization to cover expenses until specific anticipated income arrives. Small businesses often take out bridge loans from their banks to cover expenses such as paying wages of staffs or materials purchases to keep producing. Bridge loans are typically charging a higher interest than conventional financing, to secure the loans the banks will take the property
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There are five things that a creditor looks at before giving a person credit. Those are referred to as the five C's. They are capacity, capital, collateral, character, and conditions.
Capacity is the ability to pay back what you borrow. Lenders tend to look at the cash flow of someone before lending money out. They not only look at what you bring in but they also look at what you currently paying.
Capital is the cash value of assets. This is used to help lenders determine if you would be more likely to default on a loan. The lenders use debt to asset ratio as grounds for lending or denying an application.
Collateral and capital is very similar, collateral is something that
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1. Prepare a detailed activity flow chart of the loan analysis process for the SLAD using the activity description provided above
2. What is “cycle time” for processing student and non-student loans?
3. Explain the definition of “cycle time” that you have used in answering Q.2.
4. How would you measure “quality” for this process?
5. What improvements in the process would you recommend?
2. Jenis pinjaman pada SLAD terbagi menjadi dua yaitu :
• Student Loan
• Non-student Loan
Sehingga yang dimaksud dengan cycle time dalam memproses pinjaman-pinjaman ini adalah waktu yang dibutuhkan untuk memproses pinjaman mulai dari bagian Logging
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1. Discuss ways a regional bank could use the Internet effectively to recruit loan officer professionals.
The Internet has become vital tool for recruiters who use the Internet to involve posting jobs and candidates who look for information of jobs. Nowadays, many banks in the world apply the Internet to recruit loan officer professionals. They have developing and promoting advertising campaigns and post job description to attract qualified candidates for the bank and using analysis techniques to figure out the strongest candidates. By integrating job posting boards with applicant tracking and talent management systems, job recruiters make effective use of the Internet to manage
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In this task I am going to be examining the different types of secured loans and give explanations and reasons to why interest rates vary between borrowing products as well as examining the mortgage products in relations to the scenarios given and give reasons to why they should choose that specific mortgage within the case study received.
The difference between a secured loan and unsecured loan is that with an unsecured loan this is authorised with a fixed term and a fixed interest rate, which is issued only by borrower’s that generally have credit ratings that are high in order to be approved for an unsecured loan and is also obtained without the use of property as
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Payday loans are short-terms, high-interest loans where people go to a physical loan store or via online store that are not banks. They are designed for people who need a quick injection of money before their next paycheck and its purpose is fast, easy money to take care of unexpected bills or emergencies (Watson, Stephanie., 2014). They started around 1959 when the senate passed a bill allowing people to received small amount of money for short-term loans for emergency, such as bankruptcies, bad credit, etc… The bill was to help people who couldn`t receive a regular loan at a normal interest rate. Since then, Payday loans have
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Loan Origination Fees
Origination fees consist of all of the following:
a. Fees that are being charged to the borrower as prepaid interest or to reduce the loan's nominal interest rate, such as interest buy-downs (explicit yield adjustments)
b. Fees to reimburse the lender for origination activities
c. Other fees charged to the borrower that relate directly to making the loan (for example, fees that are paid to the lender as compensation for granting a complex loan or agreeing to lend quickly)
d. Fees that are not conditional on a loan being granted by the lender that receives the fee but are, in substance, implicit yield adjustments because a loan is granted at rates or
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Beginning in 2008, mortgage companies had begun to start making loans to individuals as a way to promote home ownership. With the help of Fannie Mae and Freddie Mac, there was increased pressure on these mortgage companies to loan to individuals who did not meet certain requirements that would qualify them. For obvious reasons, these qualifications were in place so that a crisis like this would have never happened. Additionally, the mortgage backed securities and collateralized debt obligations attracted investors due to their high return on investment because of the higher interest rates charged to the mortgagor. When these subprime mortgages had defaulted, both the mortgage/lending
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* Suppoe that an investor lends you money and at the agreed date you must repay the money together with the fee charged for the use of the money, known as the interest
* Interest is income from the money (capital) invested.
* The capital originally invested is called the princible while the sum of the princible and the interest is called the future value.
* Most interest transactions are described by the rate of interest, which is the ratio of the interest earned in one time unit to the principal.
* Using the method of simple interest, the interest due t be paid at the end of the loan is based on the original principal, the term of the loan and the
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Syndicated Lending 6th ed has been substantially revised to take account of market developments since 2008 with a number of new supplements. It covers all aspects of the syndicated loan market including the history of the market, landmark transactions and its future. It combines a practical guide to all stages of a syndicated loan transaction with a deeper analysis of the structure of the market.
What are the key benefits of this book?
Everything you need to know about syndicated lending is in one place. The book is a practical guide to the subject. Armed with the book the reader would have all the information needed to be able to bid for and win a mandate, price the deal, document it
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Medisol Health India Pvt. Ltd. case deals with project financing as a dental private hospital open by a doctor and prepare a project report which consist of forecasted 7 years financial details of that hospital for appearing it to a bank for financing the hospital.
The M/s Krishna Minechem & Co. case involves with a SSI of mineral powder which is financed by ICICI bank and it mostly deal with all the requirements need by bank and provided the term loan and cc limit on WC facility and to sanction this loan the process followed by bank for financing a SSI of mineral powder.
As this project deals with two type of sector so there is a brief introduction on both the issues
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or supplied by the missionaries. If the fundraising and donations go as planned, there will be $50,000.00 added from the missionaries leaving $28,494.78. This will have to be taken out as a loan. There are two banks that have agreed to loan the missionaries the money. The first bank, Bank A will lend for 5-years at 9% APR compounded monthly with monthly payments. The second bank Bank B has a 10-year loan at 12% APR compounded monthly with monthly payments.
PMT=591.504765 a month if the loan is taken with Bank A
Bank B will 10-year loan at 12% APR compounded monthly with monthly. The formula for this
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The Importance of Good Credit
Have you ever been turned down for a loan or an apartment lease and wondered why? It could be due to your credit history. Let’s face it–our credit says a lot about who we are. It is our financial report card, and can affect many aspects of our lives. Professional credit counselors at ClearPoint Credit Counseling Solutions agree that having a good credit history is imperative to leading a financially fit life.
What is Credit?
Credit is defined as a contractual agreement between a lender and a borrower in which the borrower assumes something of value, and agrees to repay the lender on a future date.
How does it work?
When you apply for credit (say a loan or
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state of the economy, rates and interest rates, trade restrictions, economic sanctions, wide swings in commodity/equity prices, foreign exchange rates and interest rates, trade restrictions, economic sanctions, Government policies, etc. The internal factors are deficiencies in loan policies/administration, absence of prudential credit concentration limits, inadequately defined lending limits for Loan Officers/Credit Committees, deficiencies in appraisal of borrowers financial position, excessive dependence on collaterals and inadequate risk pricing, absence of loan review mechanism and post sanction surveillance, etc.
Another variant of credit risk is counterparty risk. The counterparty risk
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and methods on how to avail them.
* Savings Deposit for REGULAR Members
* Loan Facility for REGULAR Members
* Savings Deposit for ASSOCIATE Members
* Loan Facility for ASSOCIATE Members
* Members Welfare Service
* Social Services
A. SAVINGS DEPOSIT FOR REGULAR MEMBERS
* Regular Savings
* Initial deposit of P500.00
* Minimum amount of P1,000.00 to gain interest
* 2.25% interest rate per annum
* Withdrawable anytime
* Time Deposit
* Minimum deposit of P1,000.00
* Interest of 6.76% for amount below P900,000.00
* Interest of 7.01% for amount P900,000.00 and above
* Can be pre-terminated
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that the line requirements over the coming 12 month period would financially support this line of credit.
It was hoped that the proceeds from the company’s peak season would pay off the short term loan (line of credit). However, declining sales, higher inventories and wrong management/financial assumptions combined placed the company in a position where it was unable to repay its short term loan (line of credit).
Line of Credit matter:
• June 1995, line of credit arranged was for $3.5M
• Communicated to the Bank was that the loan would be completely paid off by December 1995.
• September 1995, $500,000 more required due to higher expenditures for modernization of the plant
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contact your instructor.
Assignments must be submitted as a Microsoft Word® document and uploaded to the Dropbox for Unit 4. Please type all answers directly in this Assignment below the question it applies to.
All Assignments are due by Tuesday at 11:59 PM ET of the assigned Unit.
Note: All interest rates are to be assumed to be yearly interest rates. Please use exact interest.
In these questions, you will need to use the date that unit 4 starts for your class.
List the date that Unit 4 started for your class:
* Unit 4 start date: 12-24-2014
1. You decide to take out a simple interest loan for $5000, at 7% yearly interest on the date that
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On April 28, 1996, Michael Stewart, senior loan officer at the Hudson National Bank of New York, was reviewing the credit file of SureCut Shears, Inc. in preparation for a luncheonmeeting with the company’s president and treasurer. David Fischer, treasurer of SureCut Shears,had recently informed Mr. Stewart that the company would be unable to liquidate its outstandingseasonal loan as initially anticipated. While agreeing to extend the outstanding $1.14 millionloan, Mr. Stewart had suggested that he would like to stop by and discuss the company’s recentprogress when he was next in the vicinity of Savannah, Georgia, where SureCut Shears’s homeplant and offices were located.SureCut Shears
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months' tenure | 16,000 |
Mr Rozmi owns a service apartment, which is let out for rent. The statement of income and expenditure for the year ended 31 December 2001 is as follows:
Rent received | | | 26,300 |
Less: Expenses | | | |
Mortgage loan interest | 14,400 | | |
Quit rent | 300 | | |
Assessment and rates | 150 | | |
Cost of tiling the cement floor of the balcony | 1,200 | | (16,050) |
Net rental income | | | 10,250 |
The accumulated rental loss brought forward from the previous year was RM2,800.
Computed the aggregate income for Mr Rozi for the year assessment 2012
(B) Mr Ramli and his wife jointly owned a condominium that had been let
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Finance is the study of the financial market form the credit card to the house payment. so is to say that finance is the driver of our economy .Because it does only show us how deal with interest but it also teach us what we need to refinance.
The finance allows the mortgagee to see what will be the next step for his payment .so the main topic of our project will be focused on whether we should finance the loan on time or later on .so for the house in order to finance the within 20 years we need to know what will be the possible outcomes if we take that option so we will probably end up around this calculation. the monthly payment will be
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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
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3). Again, this increased Sure Cuts working capital. Finally, in September Sure Cuts asked for $500,000 in September, mainly due to non-forecasted higher expenditures for the plant modernization.
In summary, Sure Cut was unable to repay its bank loan due to the decreased in sales (and gross profit) and the increase in working capital (due to high A/R and inventory)
Has Sure Cut's financial condition worsened sufficiently to cause Mr. Stewart any great concern?
Even though sales have been decreasing, Sure Cuts has enough assets (the collaterals exceeds by far the bank loan) to pay the loan in case of a default; therefore the bank shouldn't have a big fear of not being paid.
If we see
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Hampton Machine Tool Company
On September 14, 1979, Mr. Jerry Eckwood, vice president of the St. Louis National Bank was considering a loan request from a customer located in a nearby city. The company, Hampton Machine Too] Company, had requested renewal of an existing $1 million loan originally due to be repaid on September 30. In addition to the renewal of the existin- loan, Hampton was asking for an additional loan of $350,000 for planned equipment purchases in October. Under the terms of the company's request, both loans, totaling $1.35 million, would be repayable at the end of 1979.
Since its establishment in 1915, Hampton Machine Tool Company had successfully weathered
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education. There are ways to overcome this and be able to further your education.
Most people think that they just have to fill out a financial aid form and then have to take out a loan for anything that is not covered with financial aid. With doing this people get the education they want but then have to work two or more jobs to pay back the loan. One way of overcome this is to do research. Parents who hope to afford college for their children when the time comes around are better off researching options than simply trying to save more money for education. (Insider, 2011) Having options will make it better to decide how much you will spend for college. For example, it may be cheaper to go to a
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value V of an annuity at a rate of interest i per payment period for n payment periods is given by 1 " (1 + i)"n V =P i Example Now use the formula for the present value of an annuity to find the amount needed now to pay the college tuition in the ! previous problem.
We say a loan with a fixed rate of interested is amortized if both principal and interest are paid by a sequence of equal payments made over equal periods of time. (The word comes from the Greek root "mort" meaning death; we are, in a sense, "killing" the loan by paying it off.)
Page 5 of 7
When a loan of V dollars is amortized at a rate of interest i per payment period over n payment periods, the customary
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|1999- 2000 |Ministry of Regional Administration and Local Government (MRALG). |
|2001- 2004 |President’s Office, Regional Administration and Local Government (PO-RALG). |
|2005/to date |Prime Minister’s Office, Regional Administration and Local Government (PMO-RALG) |
Source: LGLB (2013)
1.2 Objectives of the Board
The main objective of the Board is to provide cheap term loan capital finance to Local Government Authorities for investiment purposes in various economic activities with the ultimate aim of stimulating economic
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In researching how information asymmetry played a role in mortgage defaults, I found at least two types of asymmetry. The first is between a home buyer and the mortgage company. The second is between the lender and the insurer. Although I have a mortgage of my own, I am not too familiar with all of the mortgage types and other background information.
The information asymmetry between the home buyer and the lender is where the lender knows more about the financial history and type of loan that the buyer is taking out. For example, with an option ARM, the first couple years there is nothing or little owed on the principle, and some owners choose to pay nothing. But after that period of no
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You are employed as a consultant for a business improvement firm.
Resource: Zoomerang® survey website (www.zoomerang.com)
Choose a business in which you can administer an interview or questionnaire to the management staff.
Develop a Zoomerang® survey that encompasses the following:
Portrays and distinguishes the hierarchical map of the organization
What type of organizational structure is used within the company
Centralized versus decentralized decision-making strat
To download this tutorial follow the link - https://bitly.com/1oIzhaY
For many students there will come a time where he or she has to choose between taking out a student loan or quitting school. Always take out a loan! While the thought of paying back thousands of dollars might seem daunting, the chances of finding a decent job without a college degree is even scarier.
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. Nick Browns and Daisy both had income in 2012. Nick is a doctor for Royal hospital and made $135,000 in wages while Daisy worked as a banker and also earned annual salary of $75,000. The Browns received $4,500 in interest on savings account. They had invested in two types of bonds: 20-year corporate bond from Google and state of Pennsylvania revenue bond. During the year 2012, they received interest income from these two bonds, $1,800 from Google and $1,500 on the state bond. At the moment Nick is still paying for his student loan and he paid $4,500 in interest on his student loan in 2012 and Daisy is taking a course in MBA specialized in Banking Operation as she desired to get to
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intended to accommodate banks that experience “unanticipated” shortage of funds.
9) Bullet Loan: Explain the advantage of a bullet loan.
A bullet loan is a loan that specifies a date in the future in which the principal is paid off in a lump sum. This type of loan is useful for a borrower will have limited funds in the near future.
10) Bank Use of Funds Why do banks invest in securities even though loans typically generate a higher return? Explain how a bank decides the appropriate percentage of funds that should be allocated to each type of asset.
Securities provide a bank with liquidity, because they can often be sold easily in the secondary market. In addition, many securities
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Course Project – Part I
The Course Project is an opportunity for you to apply concepts learned to a real-life simulation experience. Throughout the Course Project, you will assume that you work as a financial analyst for AirJet Best Parts, Inc. The Course Project is provided in two parts as follows:
Part I – In Part I, you work with AirJet Best Parts, Inc. staff to identify the best loan options, as well as to valuate stocks and bonds.
Part II – In Part II, you will provide the company with a recommendation for purchasing a new machine. You will base your recommendation on the Net Present Value (NPV) of the capital investment project using the cost of capital (WACC) as
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: | 4.0/4.0 | |
Correct Answer(s): | C |
Assume that you can invest to earn a stated annual rate of return of 12 percent, but where interest is compounded semiannually. If you make 20 consecutive semiannual deposits of $500 each, with the first deposit being made today, what will your balance be at the end of Year 20?
Points Earned: | 4.0/4.0 | |
Correct Answer(s): | D |
Which of the following statements is most correct?
A) The first payment under a 3-year, annual payment, amortized loan for $1,000 will include a smaller percentage (or fraction) of interest if the interest rate is 5 percent
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, but it must be selling for more than $10,000.
a) Post a link to your house listing. You can also cut and paste a .jpeg file of your listing.
b) You decide to buy this house. Assuming the bank can loan you a 30-year mortgage at the yearly interest rate of Current Prime Rate + 3%, how much are your monthly payments (show all calcuations?)
A= 59,900(1+0.5208)^360 X 0.5208)(1+0.5208)360-1=368.81
c) If you were to borrow the money instead for 15 years (at the same interest rate as in part b), how much are your mothly payments?45
2. Using the house listing you found in Question 2, as well as your calculated monthly
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me when I was selecting a group of loan officers to head up a marketing campaign. Since my two best loan officers had plenty of business I decided to go with an experience loan officer who did not generate many sales and two first year employees. My reasoning for selecting these employees for my high performance team was availability. I did not rationalize the possibility of this being
High Performance Teams too big of an assignment for these employees. In hindsight the correct selection for the team would have been the two top producing loan officers and one of the new loan officers. I know this to be true because the second time I ran the marketing campaign the team was composed of
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both mergers. Following the mergers, Bernard Ebbers received a large amount of capital and company stock making him a primary shareholder and CEO.
As the MCI Worldcom stock declined, Bernard Ebbers approached the board of directors for a $400MM loan. The Executive Board of Directors were afraid Bernard was going to sell most or all of his shares, creating a panic in the market or provided an opportunity for a hostile takeover, agreed to the loan.
The combination of the loan, decline in stock price and profits placed the company on the brink of bankruptcy. Instead of telling the truth and reporting earnings and spending as they should be, senior management knowingly misrepresented the
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effective annual rate of interest?
The effective annual rate of interest is the rate that would produce the same future value under annual compounding as would more frequent compounding at a given nominal rate.
What is a loan amortization schedule, and what are some ways these schedules are used?
A loan amortization schedule is a table showing precisely how a loan will be repaid. This could be used in mortgage, car, or personal loans, which shows the breakdown of principal and interest for each payment.
Explain whether the following statement is true or false: “Only weak companies issue debentures.” Why is there a yield spread between a corporate bond and a Treasury bond?
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purchases and sales both for cash as well as for credit. The following is the summary of balances of various accounts for the transactions that took place during the year.
Trial Balance as on December 31, 2010
Particulars | Expenses/Assets | Incomes/Liabilities |
Capital | | 2000000 |
Drawings | 2000 | |
12% loan | | 100000 |
Investments | 500000 | |
Buildings | 800000
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Assignt Question ( 1) ( 10 Marks)
Impulse Pty Ltd (Impulse) is an entertainment system manufacturer that
was established in 2005. Your audit firm King & Queen have been the
auditor of Impulse since its formation. The audit report for the year ended
30 June 2012 was unqualified. Although Impulse had been suffering
liquidity problems with a drop in both debtors’ turnover and inventory
turnover, King & Queen did not consider that any additional audit work
was necessary in regard to the valuation of these assets. In August 2012,
Impulse obtained a large loan from a finance company, Easy Finance
Limited (EFL), to provide additional working capital. However, Impulse
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purchase in the secondary market.
• The limit per individual should not exceed Rs. 10 lakh and Rs. 20 lakh if the securities are held in physical and dematerialized form respectively.
• A minimum margin of 50% of the market value of equity shares / convertible debentures held in physical form and 25% of the market value in case held in dematerialized form.
• Each bank should formulate with the approval of their Board of Directors a Loan Policy for grant of advances to individuals against shares / debentures / bonds keeping in view the RBI guidelines.
ii) Advances to Share and Stock Brokers/ Commodity Brokers
• Share and stock brokers/commodity brokers registered with SEBI and who comply
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concert. - Expense, Debit
h. A long-term loan owed to Citizens Bank. - Liability, Debit
i. The albums, tapes, and CDs held for sale to customers. – Revenue. Debit
2. Basic journal entries
The following transactions pertain to the Jennifer Royall Company:
May 1 Jenni¬fer Royall invested cash of $25,000 and land valued at $15,000 into the business.
5 Provided $1,000 of services to Jason Ratchford, a client, on account.
9 Paid $1,250 of salaries to an employee.
14 Acquired a new computer for $4,200, on account.
20 Collected $800 from Jason Ratchford for services provided on May 5.
24 Borrowed $2,500 from BestBanc by securing a six-month loan.
Prepare journal entries (and
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* 1.1.1 Example 1: Future value
* 1.2 Present worth of lump sum
* 1.2.1 Example 2: Present value
* 1.3 Annuities and loans
* 1.3.1 Example 3: Loan
* 1.4 Annual vs. monthly interest rates
* 1.4.1 Example 4: Monthly payment calculation
* 1.4.2 Example 5: Monthly payments with effective monthly interest rates
Concept of equivalence
Another important concept is the concept of equivalence between a current lump sum of money and a lump sum to be received in the future. Offering someone a choice between receiving $100 today and receiving $101 one year from today can demonstrate this. Most people will
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loan the bank will be at a loss. Whether it is a home loan or credit card, banks should charge a higher interest rate to borrowers in order to have solvency. Other ways a bank can reduce and manage its credit risk is to adhere to stricter lending guidelines by only extending loans to those in a better financial situation. Credit insurance and credit derivatives “allow users to manage their exposure to credit risk. Credit derivatives are financial assets like forward contracts, swaps, and options for which the price is driven by the credit risk of economic agents (private investors or governments) (2)”.
3. “Optimum liquidity is achieved by balancing risks and returns. To be more specific