Key Concept Questions: 10 1. 10-5. Calculate the annual amount of interest (assu

Question

Key Concept Questions: 10

1. 10-5. Calculate the annual amount of interest (assuming no principal repayment) for each of the following:

1. Term loan of $122,000 over 15 years at 6.5 percent

2. Line of credit for $50,000 drawn 50% all year at 10 percent

3. 15 shares of stock purchased at $12.50 per share

4. Bonds trading at par for $2,000 with a 7 percent rate

2. 10-6. If the owner of Bright Rays Tanning Salon, Inc., invested $200,000 and had an investor pay in $45,000 for 15 percent of the corporation, what is the valuation of the business for the investor?

Explanation / Answer

10-5

Annual amount of interest:

1.   

= 122,000 * [(1.065^15) - 1]

= $191,764.60

2. (50,000 * 0.50) * 0.10 = $2,500

3 stocks don't earn interest

4. 2,000 * 0.07 = $140

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