...Week 6 – Finance Project SheaRee Terry Professor James Huskins MAT104 November 11, 2011 How much more money would I need to add to my current mortgage payment in order to pay off my home loan of $112,247.47 in 20 years instead of 25 years? While figuring this out, I need to consider all of my options and whether or not this would be worth it due to the fact that I’m already stretched extremely thin after covering all of my monthly expenses. It would make sense to first understand what my opinions are. I have to first think about the financial position I am already in. After paying all of my bills for the month, I don’t even have $100 left over to live off of for the rest of the month. This alone, causes me to think that increasing my payment amount doesn’t make sense in my current situation, but may be something I want to revisit in a few years when I have more income to spare. I can look into refinancing to see if I can possibly get a lower interest rate, but that would cost me $2000 I don’t have at the moment. At the same time, it wouldn’t hurt to figure out what interest rate would benefit me by lowering my payment and, if it’s worth it, I could come up with the closing costs. I’ve decided I will weigh my options. I will calculate how much more I will need to increase my current payment by in order to pay off this loan in 20 years without refinancing. Alternatively, my credit is in good shape so I should also be able to refinance at a lower interest rate. I will use...
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...MP A R Munich Personal RePEc Archive Impact of Interest Rates on Islamic and Conventional Banks: The Case of Turkey Erge¸ Etem Hakan and Arslan Bengul Gulumser c ¨ ¨¨ January 2011 Online at http://mpra.ub.uni-muenchen.de/29848/ MPRA Paper No. 29848, posted 4. April 2011 06:17 UTC Impact of Interest Rates on Islamic and Conventional Banks: The Case of Turkey Etem Hakan Ergeça* and Bengül Gülümser Arslanb Abstract Identifying the impact of the interest rates upon Islamic banks is key to understand the contribution of such institutions to the financial stability, designing monetary policies and devising a proper risk management applicable to these institutions. This article analyzes and investigates the impact of interest rate shock upon the deposits and loans held by the conventional and Islamic banks with particular reference to the period between December 2005 and July 2009 based on Vector Error Correction (VEC) methodology. It is theoretically expected that the Islamic banks, relying on interest-free banking, shall not be affected by the interest rates; however, in concurrence with the previous studies, the article finds that the Islamic banks in Turkey are visibly influenced by interest rates. JEL classification: G21; E52 Keywords: Interest-free banking, monetary policy I. Introduction Islamic banks1 are defined as financial institutions that rely on the principle of Profit and Loss Sharing (PLS) with the entrepreneurial partners in their relevant banking...
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...term interest rate. A Interest Rate is charged or paid for the use of money. An interest rate is often expressed as an annual percentage of the principal. It is calculated by dividing the amount of interest by the amount of principal. Interest rates often change as a result of inflation and Federal Reserve Board policies. For example, if a lender (such as a bank) charges a customer $90 in a year on a loan of $1000, then the interest rate would be 90/1000 or 9%. From a consumer's perspective, the interest rate is expressed and when the interested is earned, for example, from a savings account or a certificate of deposit. When the interest is paid, for example, for a credit card, a mortgage, or a loan, the interest rate is expressed as annual percentage rates. Interest rates are the price for borrowing money. Interest rates move up and down, reflecting many factors. The most important among these is the supply of funds, available for loans from lenders, and the demand, from borrowers. For example, take the mortgage market. In a period when many people are borrowing money to buy houses, banks and trust companies need to have the funds available to lend. They can get these from their own depositors. If the demand for borrowing is higher than the funds they have available, they can raise their rates or borrow money from other people by issuing bonds to institutions in the "wholesale market". The trouble is, this source of funds is more expensive. Therefore interest rates will...
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...easier access to finance from formal financial intermediaries has reduced the dependency of Nepali households on money lenders for loans. At present only 15.1 per cent of the total households borrowed from the local moneylenders, while fifteen years ago some 39.7 per cent of households were indebted to the moneylenders, according to the Nepal Living Standard Survey (NLSS)-III released by Central Bureau of Statistics (CBS). The drastic drop in the householders’ borrowing from moneylenders can be attributed to easier access to finance in recent years due expansion of financial intermediaries. The financial service providers lend money at sound interest rate with reasonable collateral unlike moneylenders that charge exorbitant interest rate, according to a banker. The public are turning towards organised financial service providers such as commercial banks, development banks, finance companies, microfinance banks, credit and saving co-operatives and financial NGOs have reached to most of the rural areas. The survey’s results indicated that the households are accessing more loans from co-operatives, micro-credit institutions and financial NGOs. In 1995-96, only 3.3 per cent households were borrowing from co-operatives and micro-credit organisations which has increased to 13.8 per cent in the 15 years. The emergence of these micro-credit institutions has definitely helped the deprived people access the formal finance at reasonable interest rate. “Though the...
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...international bank in UK. They wish to raise 10M to finance their floating or variable Eurodollar loans. They have 2 options ■ issuing 5 year fixed bonds at 10% or Floating rate at LIBOR. ■ It would make more sense for them to issue floating rate LIBOR because the loans that they have are floating rate. Slide 19.13 Lets look at Firm B it’s a BBB rated US company, it needs 10M to finance an investment with a 5 year economic life. They have 2 options for financing - Issuing 5 year fixed rate bond at 11.75 ( BBB rated , higher risk then AAA) - Alternatively they can issue 5 year floating-rate notes at LIBOR + .5% percent. They would prefer the fix because they would want stability Slide 19.14 Here is the summary of their borrowing opportunities, Bank A would prefer LIBOR and Firm B 11.75 Fix Slide 19.15 Speculating that interest rates will go up in the future, Bank A starts to look at better opportunities , it gets the following offer from SWAP BANK. Slide 19.16 Instead of paying rates at LIBOR , pay us LIBOR less (.125) and in the meantime deposit with us 10M and we will pay you 10.375 rate interest for 5 years. Remember Bank A has excellent credit and it can burrow from outside at 10% fix. So what Bank A does is burrow 10M from outside at 10 % fix and get 10.375 and in the meantime have an extra .125 discount on their LIBOR rate this will translate to .5% rate saving which is equivalent to $ 50,000 per year for...
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...Chapter 15 Current Liabilities Management ( Learning Goals 1. Review the key components of credit terms, accounts payable, and the procedures for analyzing them. 2. Understand the effects of stretching accounts payable on their cost and on the use of accruals. 3. Describe interest rates and the basic types of unsecured bank sources of short-term loans. 4. Discuss the basic features of commercial paper and the key aspects of international short-term loans. 5. Explain the characteristics of secured short-term loans and the use of accounts receivable as short-term-loan collateral. 6. Describe the various ways in which inventory can be used as short-term-loan collateral. ( True/False 1. Accounts payable are spontaneous secured sources of short-term financing that arise from the normal operations of the firm. Answer: FALSE Level of Difficulty: 1 Learning Goal: 1 Topic: Accounts Payable 2. Notes payable can be either spontaneous secured or spontaneous unsecured financing and result from the normal operations of the firm. Answer: FALSE Level of Difficulty: 1 Learning Goal: 1 Topic: Notes Payable 3. Accounts payable result from transactions in which merchandise is purchased but no formal note is signed to show the purchaser’s liability to the seller. Answer: TRUE Level of Difficulty: 1 Learning Goal: 1 Topic: Accounts Payable 4. In credit terms, EOM (End-of-Month) indicates that the accounts...
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...THE CHALLENGES OF GLOBALIZATION FOR SMES IN TANZANIA Prepared by Tanzania Chamber of Commerce Industry and Agriculture 1 1. Introduction: Definitions Globalization: Every one of 2,822 academic papers written on globalization and 589 new books published on the subject in 1998 had different definitions of globalization. An economic phenomenon, involving the increasing interaction, or integration, of national economic systems through the growth in international trade, investment and capital flows. It also includes a rapid increase in cross-border social, cultural and technological exchange as part of the phenomenon of globalization. 2 Definitions: Small and Medium Enterprises (SMEs): There is no consensus of SME definition as various countries had different definition depending on the phase of economic development and their prevailing social conditions. In this, various indexes are used by member economies to define the term such as number of employees, invested capital, total amount of assets, sales volume (turnover) and production capability. 3 2. SMEs in Tanzania In the context of Tanzania, micro enterprises are those engaging up to 4 people, in most cases family members or employing capital amounting up to Tshs.5.0 million. The majority of micro enterprises fall under the informal sector. Small enterprises are mostly formalized undertakings engaging between 5 and 49 employees or with capital investment from Tshs.5 million to Tshs.200 million...
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...Case 19 | Morris de Minas | By Ian H. Giddy | Vijak Pongtippun Viwan Wongviriyawong Wenyu | Introduction In August 1984, Morris Mini Mainframe Computer Company in New Jersey was looking for the most desirable financing alternative for Morris de Minas Ltda, its Brazilian affiliate, in the working capital needs of 82,650 million cruzeiros or US $39,320,000; at the exchange rate of 2,102 cruzeiros per US dollar. David Albuquerque, the vice-president of finance for the Latin American Division, was in charge of exploring possible financing arrangements and preparing a financing alternative plan. Albuquerque believed that Brazilian expected inflation rate and tax legislation, and the future exchange rate would play major roles in his analysis although it was not easy to predict. However, as a company’s consultant, we would help Mr. Albuquerque make the most effective decision that associated with the least risk possible. Company Background Morris was a manufacturer of super-mini computers located in Hackettstown, New Jersey. As it had gone globally a long time ago, by 1983, the revenue the company earned mostly from outside the United States In 1971, Morris (USA) entered the Brazilian market by assembling and distributing computers in Belo Horizonte, in the state of Minas Gerais. After its products became known for the high quality in the late 1970s, Morris expanded its market to Brazil to manufacture and distribute a line of super-minis, including a full line...
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...Financial Management Pillar Strategic Level Paper 19 November 2008 – Wednesday Morning Session Instructions to candidates You are allowed three hours to answer this question paper. You are allowed 20 minutes reading time before the examination begins during which you should read the question paper and, if you wish, highlight and/or make notes on the question paper. However, you will not be allowed, under any circumstances, to open the answer book and start writing or use your calculator during the reading time. You are strongly advised to carefully read ALL the question requirements before attempting the question concerned (that is all parts and/or subquestions). The question requirements are highlighted in a dotted box. ALL answers must be written in the answer book. Answers or notes written on the question paper will not be submitted for marking. Answer the ONE compulsory question in Section A on pages 2 to 5. The question requirements are on page 5, which is detachable for ease of reference. Answer TWO of the four questions in Section B on pages 8 to 15. Maths Tables and Formulae are provided on pages 17 to 21. These pages are detachable for ease of reference. The list of verbs as published in the syllabus is given for reference on the inside back cover of this question paper. Write your candidate number, the paper number and examination subject title in the spaces provided on the front of the answer book. Also write your contact ID and name in the space provided in the...
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...constant rate of 5% per year, and investors require a 15 % rate of return on the stock. Hint: consult pages 396-397 of your text book for correct formula. Please consult your syllabi for assignment grading criteria. 1. What is the stock’s value? In order to determine the stock’s value. I used the formula in the text E(P0)= D0 x [1 + E(g)] / R(Re) – E(g). In which D0 represents the most recent dividend, which has already been paid = $, E(g) represents the expected growth rate in dividends in the future=5%, and R(Re) represents the expected rate of return on the stock=15%. Therefore the formula is as follows: E(P0)= $2.00 x [1 + .05] / .15 - .05= E(P0)=$2.00 x 1.05 / .10= E(P0)= $2.10 / .10= $21.00 The stock’s value is $21.00 2. Suppose the riskiness of the stock decreases, which causes the required rate of return to fall to 13%. Under these conditions, what is the stock’s value? The formula used above would again be used in this situation, however the R(Re) which represents the expected rate of return on the stock now=13%. Therefore the formula is now as follows: E(P0)= $2.00 x [1 + .05] / .13 - .05= E(P0)=$2.00 x 1.05 / .08 E(P0)= $2.10 / .08= $26.25 The stock’s value is $26.25 3. Return to the original 15% required rate of return and assume a dividend growth rate estimate increase to 7% per year, what is the stock value? The formula used above would again be used in this situation, however the E(g) which represents the expected growth rate in dividends...
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...Paritosh Kashyap, www.livemint.com, in March 2010 CO PY “Close to $210 billion have flown into the Indian debt market this calendar year alone. Investment by local banks in commercial paper has surged from Rs 25.188 billion in March 2010 to Rs 37.863 billion in August. Is the moribund Indian debt market finally showing signs of life 18 years after it was opened up to global money?… The current sets of circumstances have been favorable for the Indian bond market.”3 - Abheek Barua, The Economic Times4, November 2010 “CP issuances are going to rise in the future, mainly because of t he base rate regime. The norms needed to be reviewed as the existing ones were issued at least a couple of years ago. However, RBI was not averse to more CP issuances.”5 - Shyamala Gopinath, www.indianbanks.org, December 2010 3 4 D 5 N 2 Joel Rebello and Anup Roy, “Base Rate System may Drive Firms to Commercial Paper,”...
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...BUS 530 FINancial Management Exam 1 Sample Questions Part I MULTIPLE CHOICE QUESTIONS ( ) 1. The principal-agent problem A. Occurs when managers have more incentive to maximize profits than the stockholders-owners do. B. Would not arise if the owners of the firm had complete information about the activities of the managers. C. In financial markets helps to explain why equity is a relatively important source of finance for American business. D. All of the above. E. Only A and B of the above. ( ) 2. In a partnership form of organization, income tax liability, if any, is incurred by: A. The partnership itself. B. The partners individually. C. Both the partnership and the partners. D. Neither the partnership nor the partners. ( ) 3. One common reason for partnerships to convert to a corporate form of organization is that the partnership: A. Faces rapidly growing financing requirements. B. Wishes to avoid double taxation of profits. C. Has issued all of its allotted shares. D. Agreement expires after ten years of use. ( ) 4. When a corporation fails, the maximum that can lose by an investor protected by limited liability is: A. The amount of the initial investment. B. The amount of the profit on the investment. C. The amount necessary to pay the corporation's debts. D. The amount of the investor's personal wealth. ( ) 5. Which of the following is not an advantage to incorporating a business? A. Easier access to financial markets...
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...Ed Mendicino Economic Factors that Influence Aggregated Demand and Supply Having a solid economy is not a simple task, however possessing the ability to modify and create new ways will make for a prosperous economy. Many factors affect the economy in substantial ways. Within this evaluation of the U.S., these factors will be explained, give an overview of the current state of them, and an analysis of how they affect aggregated demand and supply. These factors include unemployment rate, expectations, and interest rates. Additionally, a set of recommendations for government spending and taxes will be offered based off the economic factors current states. As of December 2013, according to bureau of labor and statistics, unemployment average is 6.7%. Across the U.S. however some states rate has increased while others had decreased. Currently 39 states had decreases, two states had increases, and nine states had not change from November 2013 to December 2013. For most states, the ongoing lower rate is not a shock as it has continued to decline since 2009 when President Obama took office and signed in the Recovery Act and the Reinvestment Act. Since then the economy has gradually came out of the recession of 2008. Over 7.2 million jobs have been created in the past 40 months by businesses and the auto industry and American manufactures added over 500,000 jobs since January 2010. With the help from government bailouts, the Recovery Act, tax breaks for the middle class and over...
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...FACES OF INDEBTNESS 1) KENYA Kenyan borrowers promptly repay their loans despite the stiff interest rates and high inflation, presenting a lower default risk investment environment for banks compared to other parts of the world. The low default risk for banks has however not translated to lower interest rates for customers despite the credit referencing system taking effect. The credit risk is measured in terms of gross non-performing advances as a percentage of the total gross advances. A survey by audit firm RSM Ashvir, based on banks 2012 financial reports showed only 4.6 per cent of loans by banks in 2011 ended up as non-performing advances. The banking industry disbursed Sh1, 335 billion, out of which only Sh61.4 million was defaulted. The risk has consistently decreased from 7.9 per cent in 2009 to 6.3 per cent in 2010. With the increase in interest rates and inflation rate, non-performing advances were expected to go higher, but it is not the case. This shows that the risk in the Kenyan market is low Interest rates spiked in December 2011 after the Central bank increased its key lending rate to a high of 18 per cent to curb the inflation rate which had peaked at 19.72 per cent in November that year. Though both the Central Bank Rate and inflation rate have dropped to 9.5 per cent and 4.11 per cent, banks are still lending at an average of 17.84 per cent. Microfinance institutions in Kenya have suffered significant loan repayment default resulting into subsequently...
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...1. Briefly explain the significance of having finance knowledge in your everyday life. Having finance knowledge is significance because it helps us to better understanding the event that happened in our everyday life. The possessed of financial knowledge enables us to apply it through our daily life. Finance knowledge can assist us managed our money in a proper manners and thus use our money efficiently. For example, we can use our money efficiently by fully utilized surplus cash through making investment or saving in the bank. Besides, we can have better knowledge of what types of borrowing that we can take if we suffered from cash deficit. Through the understanding on the loan available and term stated make an analysis that whether you are afford to pay back the loan. If you cannot afford to back the loan you are strictly prohibited to borrow in order to prevent the worst situation to occur and probably making you to the way of bankruptcy. Moreover, having finance knowledge help us having a better understanding of the financial issues that arises in our daily life. It can lead us more concern toward the economics situation that happen around, such as the changes of the interest rates, inflation rates, currency exchange and so on. As a result, we are not easily misleading by other people to involve in a bad investment. Furthermore, through the finance knowledge that we apply in our daily life, it assist us in making a wise decision that can directly influence the wealth...
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