Free Essay

My Discount Rate

In: Business and Management

Submitted By msafiri
Words 328
Pages 2
My Personal Discount rate is... Discount rate refers to the interest rate that you are willing to pay on a given amount of money today to end up with a given amount of money in the future. Recently I requested an auto loan to buy a new or used car. I was very much interested with a Honda accord. I have $2000 in my saving account to be used as a down payment. During my window shopping I found it very difficult to find a car that I’m willing to pay for it. The main reason not to come into clear decision was which one of these cars will save me some money and spares my driving for longer time. Since I know how discount rate works, I have been able to make decisions easily than I expected. New 2015 Honda accord costs $24000 with zero mileage on it. The interest rate for this car over a period of five years is 1.49%. I f I put down payment of $2000, and then finance $22000. Therefore the total loan owed after five years will be approximated to $27000. On the other hand I have a used 2008 Honda accord for $11750 under interest rate of 17% for five years. After $2000 down payment, the total amount owed after five years is approximately to $23400. Based on the simple financial analysis above I found that the discount rate on a new car is much lower than that of the used car. This lead me to a better decision of choosing a new Honda accord over used one. New Honda accord has lower uncertainty compared to a used one. Over that period of time new Honda is more likely to survive driving more than a used one. Uncertainty can be mechanical problems or maintenance issues that incur more operating costs of the car. Therefore, my discount rate is 1.49% for a new car over a used one.…...

Similar Documents

Free Essay

Gordons Dividends Discount Model

...Dividend discount model The dividend discount model (DDM) is a way of valuing a company based on the theory that a stock is worth the discounted sum of all of its future dividend payments.[1] In other words, it is used to value stocks based on the net present value of the future dividends. The equation most always used is called the Gordon growth model. It is named after Myron J. Gordon, who originally published it in 1959;[2] although the theoretical underpin was provided by John Burr Williams in his 1938 text "The Theory of Investment Value". The variables are: is the current stock price. is the constant growth rate in perpetuity expected for the dividends. is the constant cost of equity for that company. is the value of the next year's dividends. There is no reason to use a calculation of next year's dividend using the current dividend and the growth rate, when management commonly disclose the future year's dividend and websites post it. Contents[hide] * 1 Derivation of equation * 2 Income plus capital gains equals total return * 3 Growth cannot exceed cost of equity * 4 Some properties of the model * 5 Problems with the model * 6 References * 7 Further reading * 8 External links | Derivation of equation The model sums the infinite series which gives the current price P. Income plus capital gains equals total return The equation can also be understood to generate the value of a stock such that the sum of its dividend yield (income) plus its......

Words: 564 - Pages: 3

Free Essay


...A&W – Discount varies, simply ask and have a valid military ID with you. Advance Auto – 10% off with military ID – Up to 40% off standard real estate closing costs for Active duty men and women moving in the United States or Canada All State – Allstate Funding proudly offers all U.S. Military personnel a $250 credit towards the appraisal of a residential property. Ends 12/31/2010 American Airlines – Discount varies, requires military ID American Video Productions -10% off to active duty, retired, families of military and dependents. Call and ask for the discount Amtrak – 10% off Anheuser – Busch Amusement Parks – Discount varies, simply ask and have a valid military ID with you. Anna’s Linens - 10% off any purchase with Valid Military ID in store only Apple Computers - The discount varies, you need to sign up here – Applebee’s – Discount varies per location, simply ask and have a valid military ID with you Arby’s - Discount varies per location, simply ask and have a valid military ID with you. Ashford University – Discounted tuition at $250 a credit, books are covered for all required courses, waived application fee, waived technology fee and more! Benefits apply to all Active Duty, National Guard, Reservists and spouses, dependents eligible for survivor benefits, plus civilian DOD employees & separated vets/retirees still using their GI Bill. ASMBA – Armed......

Words: 2977 - Pages: 12

Premium Essay

An Analysis of Exchange Rate and Interest Rate

...AN ANALYSIS OF THE EFFECTS OF INTEREST RATE AND EXCHANGE RATE CHANGES ON STOCK MARKET RETURNS: EMPIRICAL EVIDENCE OF GHANA STOCK EXCHANGE A thesis submitted to the Institute of Distance Learning, Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirement for the degree of COMMONWEALTH EXECUTIVE MASTERS OF BUSINESS ADMINISTRATION Institute of Distance Learning, KNUST JUNE, 2011 DECLARATION I hereby declare that this submission is my own work toward the Commonwealth Executive Master of Business Administration and that, to the best of my knowledge, it contains no material previously published by another person nor material which has been accepted for the award of any other degree of the University except where due acknowledgement has been made in the text. RANSFORD CHARLES ENYAAH (STUDENT ID No: 20103521) …………………… Signature …………………. Date Certified by: EDWARD ACHEAMPONG (SUPERVISOR) …………………… Signature …………………. Date Certified by: ……………………………… Head of IDL …………………… Signature …………………. Date i DEDICATION I dedicate this project work to the Lord Almighty and all my loved ones. ii ACKNOWLEDGEMENT First of all, I thank the almighty God for fulfilling his promises to my life and for granting me the strength, wisdom and knowledge to complete this work My profound gratitude goes to my Supervisor, Mr. Edward Acheampong (Lecturer, Methodist University College, Ghana) for his unflinching......

Words: 13267 - Pages: 54

Premium Essay

Whether the Interest Rate Pushes Equity Risk Premium Rate Up?

...Introduction: We know the fact that low interest rate affects stock market price. Low interest rate decreases the cost of capital and increases the confidence of investors. The equity risk premium is the "extra return" that investors collectively demand for investing their money in stocks instead of holding it in a risk less or close to risk less investment. As a consequence, equity risk premium reflects both investor hopes and fears about stocks, rising as the fear factor increases. As a measure the equity risk premium can be an individual stock or the overall stock market provides over a risk-free rate. And the size of the premium will be a standard to compensate with a higher premium in the stock market. Thus, a portfolio manager when the equity risk premium increases in the future, the investors will sell out stock market because the stocks are over priced. So the legislators and pension administrators decide how much to set aside to meet future pension obligations, based upon assessments of equity risk premiums. However the history data of ERP (Equity Risk Premium) from Federal Reserve System shows it keeps low and stable state but increases suddenly since 2006. At the same time the Federal Funds Effective Rate goes down and keeps low state. We know that interest rate is a way to control inflation. Inflation is a factor causes too much money chasing too few goods. “Changes in the federal funds rate affect the behavior of consumers and......

Words: 3534 - Pages: 15

Free Essay


...Air-conditioned Dorm-type Rooms • 6-10 guests sharing • 8 a.m. – 5 p.m. or 7 p.m. – 6 a.m. Php 2,000 plus ENTRANCE ( Adult - Php 200; Child below 4 ft. & Senior Citizen - Php 160) 8 a.m. – 6 a.m. or 7 p.m. – 5 p.m. Php 4,000 plus ENTRANCE (Adult - Php 350; Child below 4 ft. & Senior Citizen - Php 250: with complimentary breakfast) 4 guests sharing Family Rooms at the Annex B for DAY USE (8am-5pm) Php2,500 plus ENTRANCE 3 guests sharing Php2,000 plus ENTRANCE (Adult - Php 200; Child below 4 ft. & Senior Citizen - Php 160) Swimming Attire : • swimsuit • swimming trunks • WHITE shirt • garterized shorts • Food Allowed. Also available at DDSS Center. On Air-con Rooms: Alcoholic Beverages are NOT allowed. 1. 50% down payment on room rates upon reservation. NON-REFUNDABLE. Rates are subject to change without prior notice. 2. PHP1,000 incidental deposit upon check-in 3. valid ID 8 swimming pools are open during Summer for Day Tour (8am-5pm). SEE US SOON! =) ...

Words: 539 - Pages: 3

Premium Essay

Solutions to Bonds and Discounts

...should be to maximize the firm’s stock price. 5. The coupon rate equals the annual coupon payment divided by par value. The coupon yield equals the annual coupon payment divided by the bond’s market price. 6. A bond sells at a discount when the bond’s coupon rate is lower than the market’s required rate of return on the bond. 11. An issuer benefits from an option to call a bond, because such an option allows the issuer to lock in a more favorable interest rate if rates should fall.. The option to convert bonds into common stock benefits bondholders. Once the stock price rises high enough, the value of the bonds starts to behave like the stock’s value—the prices start to rise. So convertible bonds offer investors some minimal level of return plus a lot of upside potential. 13. The price of a Treasury note quoted as 98:10 is 98 10/32 percent of par value or $983.125. Answers to End-of-Chapter Questions Q4-1. What is the relationship between the price of a financial asset and the return that investors require on that asset, holding other factors constant? A4-1. Holding an asset’s cash flows constant, if investors pay a higher price for the asset, then their return from holding the asset will be lower. In general, asset prices are inversely correlated with returns. Q4-2. Define the following terms commonly used in bond valuation: (a) par value, (b) maturity date, (c) coupon, (d) coupon rate, (e) coupon yield, (f) yield to maturity (YTM), and (g)......

Words: 2371 - Pages: 10

Free Essay

Spot Rate Exchange Rate

...Critical Thinking, (Spot Exchange Rate) The interest rate on South Korean government securities with one-year maturity is 4%, and the expected inflation rate for the coming year is 2 %. The interest rate on U.S. government securities with one-year maturity is 7%, and the expected rate of inflation is 5%.The current spot exchange rate for Korean Won (W) is $1 = W1,200. Forecast the spot exchange rate one year from today (Hall, p. 318). The forecast spot exchange rate one year from now will be W1,166.35. Explain the logic of this answer? The logic for the above answer begins by understanding the meaning and relationship between Spot, Exchange Rate, Interest Rate Parity, and Fisher Effect. 1. Spot Exchange Rates The interaction between supply and demand influences the exchange spot rate. The spot exchange rate is the daily rate which one currency is converted into another. 2. The Fisher Effect In foreign currency transactions between two countries, the spot exchange rate changes in equal amounts as it moves the opposite direction to the difference in nominal interest rates between two countries. According to the Fisher effect, only the interest rate and not the inflation rate are used for calculating the spot interest rate. 3. Interest Rate Parity The differences in currency values pertain to short-term interest rate differences between two countries. The real int. rate in the United States is 2% (7-% maturity – 5% expected inflation). The real interest......

Words: 486 - Pages: 2

Free Essay

Simple Interest and Discount Discussion

...raises should reflect seniority only? Do you agree? Why or why not? I do not agree with using just seniority. If you are not performing and contributing to the group you do not deserve a raise based on the fact that you have been there longer than someone who works harder than you. 6 employees * 4% = 24 I used 24 to calculate the percent of wage increases. Total wages before raise is 188000 * 4% = 7520.00 to be divided up between the six employees. 188000 *7520 = 195520 If you round down my totals they meet the average quota. Original Salary Amount of Increase New Salary Percent of Increase 28500.00 1111.50 29611.50 3.9% 28500.00 1083.00 29583.00 3.8% 32700.00 1471.50 34171.50 4.5% 31400.00 942.00 32342.00 3.0% 34500.00 1035.00 35535.00 3.0% 32400.00 1879.20 34279.20 5.8% T-188000.00 T-7522.22 T-195522.20 T-24% 2. The interest formula shows how interest, rate, and time are related. It gives you a way of finding one of these values if the other three values are known. Even though you try to be careful in your calculations, there will always be that occasion when you make an error and end up with an incorrect answer. You can avoid such errors by first predicting what a reasonable answer might be by estimating. As an example, if you have an 11.2% interest, you could use 11% to estimate what the correct result would be. Search the internet to find an......

Words: 852 - Pages: 4

Free Essay

Hurdle Rates

...Minimum acceptable rate of return From Wikipedia, the free encyclopedia In business and engineering, the minimum acceptable rate of return, often abbreviated MARR, or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other projects.[1]. A synonym seen in many contexts is minimum attractive rate of return. For example, suppose a manager knows that investing in a conservative project, such as a bond investment or another project with no risk, yields a known rate of return. When analyzing a new project, the manager may use the conservative project's rate of return as the MARR. The manager will only implement the new project if its anticipated return exceeds the MARR by at least the risk premium of the new project. The hurdle rate is usually determined by evaluating existing opportunities in operations expansion, rate of return for investments, and other factors deemed relevant by management. A risk premium can also be attached to the hurdle rate if management feels that specific opportunities inherently contain more risk than others that could be pursued with the same resources. A common method for evaluating a hurdle rate is to apply the discounted cash flow method to the project, which is used in net present value models. The hurdle rate determines how rapidly the value of the dollar decreases out in time, which, parenthetically, is a......

Words: 791 - Pages: 4

Premium Essay


...Title: The effect of the concentration of hydrogen peroxide on the rate of reaction of catalase from potato Focus question: How will the concentration of the substrate hydrogen peroxide affects the rate of reaction of the enzyme catalase. Apparatus/Materials: Goggles, Lab coat, Potato, Core, 100mL beaker, Hose and stopper, Different concentrations of hydrogen peroxide (3.0%, 6.0% and 9.0%), Gas collecting tube Variables: Dependent variable: (1) rate of oxygen production Independent variable: (1) Concentrations of hydrogen peroxide (3.0%, 6.0% and 9.0%) Controlled variable: (1) The size and mass of the potato slices (2) The amount of time each experiment was left (3) The volume of hydrogen peroxide placed in the cylinder (4) The size of the test tubes (5) Temperature was left constant at room temperature (optimum temperature for catalase) Procedure: 1. The lab coat and googles were put on 2. A potato was sliced into two equal pieces using a core 3. The potato slices was placed into a test tube 4. The gas collection tube was completely filled with water and placed into a 100mL beaker which was also filled with water. 5. The hose in the ‘stopper and hose’ was placed in the gas collection tube 6. 10 mL of 3%  hydrogen peroxide was added and the stopper was immediately attached to the test tube as seen in the diagram below 7. The amount of oxygen produced was measured every minute for five minutes 8.......

Words: 824 - Pages: 4

Premium Essay

Ladi Discount

...Ladi Discount To: Mr. Theodor Von Hessen Chief Executive Officer, Ladi Discount From: John Faggit Business analyst, Ladi Discount Date: October 23, 2015 Subject: The development of consumer behaviour and the industry of discount stores and supermarkets in Denmark. As you requested on October 19, this briefing provides information about the current situation at the Danish market within the industry of discount stores and supermarkets as well as consumer behaviour. I here present a summary of the most important elements from my research. Key findings: The past 10 years we have experienced an increase in the consumption of the average Danish consumer on about 30 per cent. People are getting richer every year and therefore spend more money. During the last 15 years, the consumers’ spare time has been reduced by two hours in weekdays. They have less time to shop in stores and spend more time shopping online with the effect that there will be fewer “offline” shops. However, those remaining will become bigger (an average increase in area by 2-3 per cent the latest years). On that behalf, the location of shops and supermarkets is becoming even more important. In malls, and other places where there tend to be more people during the day, will become an attractive place to be located. How to attract customers will be vital in the future where clean concepts and interior design in shops will be essential to retain customers and attract new. The turnover......

Words: 396 - Pages: 2

Premium Essay

Methodology - "“Just Give Me a Number!” Practical Values for the Social Discount Rate"

...present period?” INTRAGENERATIONAL DISCOUNTING * Consumption rate of interest cum shadow price of capital method (CRI-SPC Method) * The level of public investment should be based on individual preference for present consumption vs. future consumption * The marginal rate of time preference * Investment is simply a means of using resources that are potentially available for consumption now in order to increase consumption later * Individuals typically have a positive rate of time preference * They demand compensation when forgoing present for future consumption * SDR = rate of time preference * If the future increase in net benefits > present costs (via consumption rate of interest, CRI) = project passes a potential compensation test * Possible for the winners to compensate the losers * Still have sufficient gains to allow for pareto efficiency * Ex. Net return available to individual savers is 2% per year Project cost (to taxpayers) = $1M this year Net benefit = $3.2M in 50 years * forgoing current consumption of $1M and lending at 2%, return = $2.72M in 50 yrs * therefore, the $3.2M benefit will be preferred * If we ignore intragenerational redistributions, we can suggest that this project would improve social welfare * If individuals seek to maximize their own well-being (economic theory), then marginal rate of time preference = rate at which they can trade present for future consumption (or......

Words: 1311 - Pages: 6

Premium Essay

Rate of Return

...Rate of Return In some situations, you know the cost of an investment opportunity and the expected cash flows from it, but you do not know the rate of return. The rate of return on the investment opportunity is the rate at which the present value of the benefits exactly offsets the cost. For example, suppose you have an investment opportunity that requires a $1000 investment today and will have a $2000 payoff in six years. This would appear on a time- line as: 0126 ... Given: Solve for: N I/Y PV 10 7 0 60,000 PMT 4343 FV $1000 $2000 One way to analyze this investment is to ask the question: What interest rate, r, would you need so that the present value of what you get is exactly equal to the present value of what you give up? 2000 1000 = 11 + r26 Rearranging this calculation gives the following: 1000*11+r26 =2000 That is, r is the interest rate you would need to earn on your $1000 to have a future value of $2000 in six years. We can solve for r as follows: 1 1 + r = a2000b6 = 1.1225 1000 Or, r = 0.1225. This rate is the rate of return of this investment opportunity. Making this investment is like earning 12.25% per year on your money for six years. When there are just two cash flows, as in the preceding example, it is straightforward to compute the rate of return. Consider the general case in which you invest an amount P today, and receive FV in N years: P * 11 + r2N = FV 1 + r = 1FV/P21/N That is, we take the total return of the......

Words: 953 - Pages: 4

Free Essay

Hard Discount

...Le Hard Discount alimentaire Le Hard Discount Alimentaire L’historique du hard-discount alimentaire -L’historique Une forme de hard-discount (non alimentaire) est apparue en 1917 aux Etats-Unis. Cependant, le hard-discount alimentaire est réellement inventé en Allemagne dans la période post-seconde guerre mondiale (1947) par les frères Albrecht fondateurs d’Aldi. Après un échec dans les années 70, le hard-discount alimentaire arrive, véritablement, en France durant l’année 1988, par le lancement d’ED. A savoir, que la grande distribution ne croit pas en cette nouvelle forme de distribution. -Concept (Concept construit sur des prix bas, 20 % à 30% inférieurs aux GMS, accord solide et de longue durée avec les fournisseurs pour réduire les couts d’achats, marges réduites pour augmenter les volumes de vente.) -Définition « Un magasin hard-discount est un libre service alimentaire avec un personnel réduit, une présentation sommaire, un assortiment limité aux produits de base, des prix bas, peu ou pas de marques nationales, mais des produits sous marques de distributeurs ou des produits sans marque ». Le marché Pourquoi un tel succès ? Le phénomène est d'une simplicité désarmante : le pouvoir d'achat en chute libre entraîne l'explosion de la fréquentation des enseignes de l'alimentation « low cost » appelée plus fréquemment hard discount. Alors que ces derniers représentaient......

Words: 1774 - Pages: 8

Free Essay

Causality and the Diversification Discount

...1 Causality and the Diversification Discount 1 Introduction Does corporate diversification, i.e. the expansion of a firm’s business operations into unrelated areas, destroy shareholder value? The wealth effects associated with conglomerates have been controversially discussed in scholarly journals ever since the seminal papers of Lang and Stulz (1994) and Berger and Ofek (1995) suggested that diversification reduces shareholder value. Both find that conglomerates are attributed with a lower market value than a portfolio of comparable focussed firms operating in the same businesses as the conglomerate. This finding seemed to suggest the hypothesis of a “diversification discount”. In line with this Scharfstein and Stein (2000) postulate "it has become almost axiomatic among researchers in finance and strategy that a policy of corporate diversification is typically value reducing.” Yet, subsequently financial scholars have challenged this dogma of a diversification discount. They did so with respect to the method used (Mansi and Reeb (2002); Glaser and Müller (2010)) and the causal interference (Graham et al. (2002); Campa and Kedia (2002); Villalonga (2004)). Taking these latest developments into account, the empirical evidence on the value effects of corporate diversification is mixed. The controversy that has evolved around these wealth effects provides a suitable setting to investigate the pitfalls associated with causal analysis and interference......

Words: 2442 - Pages: 10

Onegai Sensei | Registration | Distance: nearest first