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Find the best match for each term. transfer of funds between supplier and user of funds through a A. financial intermediary B. Space in which investment banks are likely to provide underwriting services Delegated monitor C. Risk that an asset's sale price will be lower than its purchase price Short term loans transfered between financial institutions, typically D. overnight Primary market Federal funds E. Role that fund suppliers give to financial institutions to collect information on borrowers on their behalf v Commercial banks F. Major assets are loans and major liabilities are deposits financial companies that protect individuals and corporations from G. adverse events H. Securities firms and investment banks
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A company has debts of $500,000 due in one years’ time and $800,000 due in five years’ time. Given an interest rate of 4.2% p.a. compounding quarterly, what single payment two years from today would extinguish both obligations?
Expert Solution
1
Delegated Monitor - Monitoring of transactions by a third party
Ans :A.Transfer of funds between suppliers and user of funds through a financial intermediary
Primary Markets : Primary markets are where firms issue inital public offering
Ans :B. Space in which investment banks are likely to provide underwriting services
Federal Funds : Major banks and financial institutions can borrow fed funds for overnight
Ans :D.Short term loans loans transferred between financial institutions, typically overnight
Commercial Banks : Commercial banks have assets are loan where liabilities in deposits in balance sheet.
Ans :F.Major Assets are loans and major liabilities are deposits
2
| Payment two years from today means: | ||
| $ 500000 paid 1 year(4 quarters) beyond due date, ie. Future value of $ 500000 after 4 quarters at 4.2% /4=1.05% per quarter= | 500000*(1+0.0105)^4= | 521333.07 |
| $ 800000 paid 3 yrs.(12 quarters) ahead of due date ie. Present value at t=2 of $ 800000 with 12 quarters to go for maturity ,at 4.2% /4=1.05% per quarter= | 800000/(1+0.0105)^12= | 705755.34 |
| The single payment 2 years from today , that will extinguish both obligations= | 1227088.41 | |
| (Answer) |
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