03 TASK PERFORMANCE 1

I. MULTIPLE CHOICE

1. C

2. B

3. B

4. D

5. C

6. C

7. D

8. A

9. C

10. B

II. CASE ANALYSIS

1.

A.

Let 𝑡 𝑖2= 5%;

𝑡𝑖𝑖 = 2%

𝑡+1𝑟1 =𝑥

(1+𝑡𝑖2)2 = (1+𝑡𝑖𝑖)(1+𝑡+1𝑟1)

Substitute the given values in the formula,

(1.05)2 = (1.02)(1 + 𝑥)

Then, find the value of 𝑥,

1.1025= 1.02 + 1.02𝑥

𝑥 = 0.08 or 8.08824 %

Therefore, the 1-year interest rate that is anticipated in the 2nd year is 0.08 or 8.08824 %
B.

Let 𝑡𝑖2 = 5.2%;

𝑡 𝑖𝑖 = 2%;
𝑟1 = 8.08824 %; and
𝑡+1

𝐿𝑃2 = 𝑥.

(1+𝑡𝑖2)2 = (1+𝑡𝑖1)(1+𝑡+1𝑟1) + 𝐿𝑃2

Substitute the given values in the formula,

(1.052)2 = (1.02)(1.0808824) + 𝑥
Then, find the value of 𝑥,
1.106704 = 1.102500048 + 𝑥
𝑥 = 0.423952%

Therefore, the 1-year interest rate that is anticipated in the 2nd

year is 0.423952%

2.

𝑅𝑓𝑟 = 𝑅𝑓 − 𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛
= 8% − 3%
=5%

The real risk-free rate is 5%. ,

𝑅𝑓 = 𝑅𝑓𝑟 + 𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛
= 5% + 4.5%
= 9.5%

Then, compute the applicable interest rate or return that Hartendrop Financing should issue to Tanasas
Corporation.

𝑖 = 𝑅 𝑓 + 𝐷𝑚
= 9.5% + 3%
= 12.5%