A typical Idaho payday loan cost is approximately 1% per week plus fees. On a $5

Question

A typical Idaho payday loan cost is approximately 1% per week plus fees. On a $500 loan for 14 days the fees plus interest are about $125.[1] What is the equivalent annual cost of this loan?

Place the following sources of external financing in order of increasing importance (i.e., total volume issued in the U.S. since 2000)
I. Preferred stock
II. Common stock
III. Debt
a. I, II, III
b. II, I, III
c. III, I, II
d. III, II, I

For each of the following years, rank the government yield curve from highest to lowest rates:
a. 2015, 2004, 1994, 1984
b. 1994, 2015, 2004, 1984
c. 2015, 1984, 2004, 1985
d. 1984, 1994, 2004, 2015

Suppose a zero coupon bond with a par value of $1000 and 8 years to maturity has a price of $500. What is its yield?

Explanation / Answer

1. Calculation of equivalent annual cost of this loan:

equivalent annual cost of this loan = (Cost of the loan / Amount of the loan)*365 / days

=(125 /500)*365/14 = 6.518 = 65.18%

2. Source of External financing order:

First preference is given to Equity / Common Stock, then prefernce and then Debt.

Hence the correct answer shall be :

b. II I III

3. (Insufficient information)

4. Calculation of yield on zero coupon bond:

Zero Coupon bond yield = [(Future value / Present value) ^(1/n) ] -1

Future value = Par value = $1000

Present value = Price = $500

n = number of years = 8

Zero Coupon bond yield = [(1000 / 500) ^(1/8) ] -1

= [2^(1/8) ] -1

= 1.0905 - 1

= 0.0905

= 9.05%

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