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To purchase a house for $80,000, a new couple has $12,000 available for down payment. They are considering two options:
Option 1: get a new standard mortgage with 10% APR interest compounded monthly for a 30-year term
Option 2: assume the seller’s old mortgage that has an interest rate of 8.5% APR compounded monthly, a remaining term of 25 years (from an original 30 years), a remaining balance of $35,394. You can obtain a second mortgage for the remaining balance from your credit union, at 12% APR compounded monthly, with a 25-year repayment period.
a) What is the effective rate for option 2 per year?
b) Compute the monthly payments for each option over the life of the mortgage
c) What APR charged by the credit union would make the two financing options equivalent?
The (zero coupon) U.S. treasury strip maturing in one year is selling at an annual yield to maturity of 1.20 percent, which is equivalent to a price of 98.814 percent of its $1000 par value. determine the yield to maturity for a risk-free zero coupon..
State the intrinsic value and the speculative premium for the call and put options. Why is the speculative premium so small for each option - Use the Black-Scholes OPM to find C.
Great Pumpkin Farms just paid a dividend of $3.10 on its stock. The growth rate in dividends is expected to be a constant 6 percent per year indefinitely. Investors require a return of 13 percent for the first three years, a return of 11 percent for ..
From a human resource standpoint, in which country do you think a U.S. corporation would face the biggest challenge in terms of opening up an overseas division? Consider cultural, legal, economic, and any other factors you think would be relevant in ..
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Discuss primary financial statements published by a corporation, the various classifications used in a balance sheet-What is the purpose of a Balance Sheet? What information does it provide?
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A business borrows $297,268 for 12 years at an annual rate of interest of 7.4%. If payments are annual and the loan will negatively amortize by $45,318, what will be the annual payment required? Put your answer in as a positive number. What is the pr..
Okie Industries purchased a CNC machine 5 years ago for $125,000. It is being depreciated on a straight-line basis over 15 years to an estimated salvage value of $0. It could be sold now for $50,000. The firm is considering selling if and purchasing ..
A company has 100 million shares outstanding trading for $8 per share. It also has $900 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost of capital is 12%, and its effective corporate tax rate is 40%, what is its w..
All the following statements concerning the use of an insured corporate cross-purchase buy-sell agreement are correct EXCEPT:
How purchase of the apple press might affect the company revenue goals - return on investment for new capital investments and the company uses a cost of capital of 8.
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