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Busn379

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Task 1
1. EARS The APR for National bank is PM+6.75=3.25+6.75=10% Semiannually EAR=(1+APR/m)^m -1 EAR=(1+.10/2)^2 -1 EAR=(1+0.05)^2 -1 EAR=1.05^2 -1 EAR=1.1025-1 EAR=10.25% APR for Regions Best is 13.17% Monthly EAR=(1+APR/m)^m -1 EAR=(1+.1317/12)^12 -1 EAR=(1+0.010975)^12 -1 EAR=1.010975^12 -1 EAR=1.1399-1 EAR=13.99%
2. I would go with National First because the EAR shows how much interest you would actually be paying and it comes out that National First will charge 10.25% interest while Regions best will charge 13.99%.
3. APR of 8.6% monthly comes out to EAR of 8.95% monthly
EAR=(1+.086/12)^12 -1 EAR=(1.0072)^12 -1 EAR=1.0895-1 EAR=8.95% Annuity present value = 6,950,000=C x (1-PVF)/r 6,950,000=C x (1-1/1.0895^5)/0.0895 6,950,000=C x (1-1/1.5351)/0.0895 6,950,000=C x (1-0.6514)/0.0895 6,950,000=C x 0.3486/0.0895 6,950,000=C x 3.895 C=1,784,338.89 The monthly payment would be made using an actual interest rate of 8.95%. I think that the EAR in this case is very close to the quoted 8.6% APR. On this much money it could cause a big difference in the amount paid in the end but that is still a lower rate than the banks were offering for the $8M. This is also being paid back in a fairly quick time which lowers the interest damage taken as well. I agree with the decision to take the loan.

Task 2 1. Raytheon is priced at 54.99 and has a dividend of 2.00 and a dividend yield of 3.64% R = D1/Po + g R = 2/54.99 + .05 R = .0364+.05 R = .0864 The rate of return for Raytheon is 8.64%
2. Po = 1.5 x (1+.01) / (.0864 – .01) Po = 1.515 / .854 Po = $1.77
3. The preferred stock would usually have a higher price because the dividends are paid out before

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