1. McCoy’s Hardware can borrow from its bank at 17 percent to take a cash discount. The terms of the cash discount are 3/19, net 45. Should the firm borrow the funds? Show all work.
Your bank will lend you $40,000 for 60 days at a cost of $500. What is your effective interest rate?
2. Calculate the bond equivalent yield and effective annual return on a jumbo CD that is 125 days from maturity and has a quoted nominal yield of 6.66 percent? Bond equivalent yield? Effective annual return?