1. Start by drawing 2 boxes. Label them Firm A and Commercial Bank. Firm A gets a $300,000 loan from their neighborhood commercial bank. Each month for 5 years, Firm A must pay the commercial bank a principle payment and an interest payment of the principle times LIBOR + .06. (LIBOR stands for the London Interbank Offer Rate, it is a base interest rate used when banks lend money to each-other. It is common practice to base commercial and mortgage loan interest rates off of LIBOR instead of the US Federal Funds Rate. LIBOR is a more volatile rate than the Fed rate.) Firm A’s monthly payment: prin + prin * (LIBOR + .06) Draw the flows between Firm A and the commercial bank.
What is the default risk premium for Firm A?
a. LIBOR
b. 2%
c. 5%
d. 6%
e. 0.6%
2. The only asset Bill purchased during 2017 was a new seven-year class asset. the asset, which was listed property, was acquired on June 17 at cost of $50,000. The asset was used 40% for business, 30% for the production of income, and the rest of the time for personal use. Bill always elects to expense the maximum amount under &179 whenever it is applicable. The net income from the business before the &179 deduction is $100,000. Determine Bill's maximum deduction with respect to the property for 2017.
A. $1,428
B. $2,499
C. $26,749
D. $33,375
E. None of the above