1. Barnes and Noble has debt outstanding of $3,000. The debt pays interest at a rate of 8% and has a yield to maturity of 5%. B&N’s tax rate is 25%. How much does B&N save in taxes this year because of its debt?
40
60
120
240
2. You buy a wedding gown for $2,999, plus sales tax of 7.5%. The retailer finances the entire amount (including the sales tax) for 3 years and says you will be charged 12% interest. However, the retailer uses the add-on method. Calculate the real rate you are paying the retailer.
a. 18.8%
b. 26.60%
c. 21.20%
d. 22.57%