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Annuity with changing interest rates
You are chairperson of the investment fund for the Continental Soccer League. You are asked to set up a fund of semiannual payments to be compounded semiannually to accumulate a sum of $270,000 after 15 years at an 14 percent annual rate (30 payments). The first payment into the fund is to take place six months from today, and the last payment is to take place at the end of the 15th year. UseAppendix A and Appendix C.
(a) Determine how much the semiannual payment should be. (Round "FV Factor" to 3 decimal places and final answer to the nearest dollar amount. Omit the "$" sign in your response.)
Semi-annual payment $
On the day after the sixth payment is made (the beginning of the fourth year) the interest rate goes up to a 16 percent annual rate, and you can earn a 16 percent annual rate on funds that have been accumulated as well as all future payments into the fund. Interest is to be compounded semiannually on all funds.
(b) Determine how much the revised semiannual payments should be after this rate change (there are 24 payments and compounding dates). The next payment will be in the middle of the fourth year.(Round "FV Factor" to 3 decimal places, intermediate and final answer to the nearest dollar amount. Omit the "$" sign in your response.)
Revised semi-annual payments $
Tattered Books has a WACC of 13.6 percent and a cost of equity of 16.1 percent. What is the after-tax cost of debt if the debt-equity ratio is 0.40? (Hint: First find the weights of debt and equity using the debt-equity ratio and then plug them into ..
The purchase price and value of a home are $200,000. A borrower secures an 80% LTV, 30 year ARM with an initial interest rate of 4% to finance the purchase. Mortgage terms call for annual interest rate adjustments. What is the monthly payment for the..
The Caughlin Company has a long-term debt ratio of 0.45 and a current ratio of 1.25. Current liabilities are $987, sales are $6,860, profit margin is 8.6 percent, and ROE is 17.5 percent. What is the amount of the firm's net fixed assets?
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The Bovespa (Brazilian Equity Index) is at 15,000. The dividends on the Index last year were 5% of the Index value. Analysts expect them to grow at 15% a year in real terms for next 5 years. After the 5th year, the growth is expected to drop to 5% in..
Moogle, Inc. is in the same business as Google, Inc., but has recently retired all its debt to become an all-equity firm. Its return on equity has dropped from 12.25% to 10.60% as a result of this
You are buying a house and the mortgage company offers to let you pay a "point" (1% of the total amount of the loan) to reduce your APR from 6.5% to 6.25% on your $400,000, 30 year mortgage with monthly payments. If you plan to be in the house for at..
The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY)b1. Two years from now, the YTM on your..
A 1-year discount bond with a face value of $1,000 was purchased for $900. What is the yield to maturity? What is the yield on a discount basis?
Assume sigma=0.15, nu=0.10, and current stock price $32. Monthly interest rate is 1%. Compute present values of the following options expiring in 3 months. (a) A European call option with strike $30, assuming $2 dividend in 40 days.
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