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Kin and Lee wish to buy a house, and need to borrow $350,000 from the FirstChoice Bank which will charge interest at a rate of j12=5.40%p.a. Initially they intend to repay this loan with monthly payments of $3500, with the first payment occurring one month after the loan was taken out. However, they plan to drop this back to $2500 a month after two years (24 payments).
a) Illustrate the cash flows associated with this loan as a fully labelled time line diagram.
b) Decompose this timeline diagram into two fully labelled time line diagrams, each of which is a simple annuity.
c) Determine how long it takes to repay the loan.
d) Find the size of the partial payment. Describe and perform a sanity check on your answer.
e) Construct an amortization table showing the last three payments (i.e two full payments and a partial payments), and describe and perform a sanity check on the final outstanding principal.
Estimate the amount of life insurance you would have to buy in order to guarantee a payment of $50,000 each year to your family.
Diversifiable risk is the risk that remains after diversification.
MF Corp. has an ROE of 18% and a plowback ratio of 55%. The market capitalization rate is 15%. If the coming year's earnings are expected to be $2.90 per share, at what price will the stock sell? What price do you expect MF shares to sell for in 5 ye..
Microhard has issued a bond with the following characteristics: Calculate the price of this bond if the YTM is 7%
You are currently working at a mid-sized certified public accounting firm. Your client is Bob Jones. Bob, age 60 and single, has recently retired from IBM. Differentiate between accrual accounting and cash basis. Based on the type of business and the..
Teddy bear Planet, Inc., has a project with the following cash flows. YEAR CASH FLOWS ($) 0 -$11000.00 1 $5500.00 2 $4000.00 3 $3000.00 The company evaluates all projects by applying the IRR rule. If the appropriate interest rate is 8 percent should ..
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One year ago, you purchased 300 shares of Sith Brothers, Inc., at $51.64 a share. The stock paid a total of $660 in dividends during the year. Today, you sold your shares for $52.08 share. What is your total return on this investment?
The following Income Statement and Balance Sheet is for Damian's and Weston's Company: $K 2015 2014 Sales 60 20 Operating Costs 25 8 Depreciation 4 2 EBIT 31 10 Less Interest 0.5 0.5 Earnings before Taxes 30.5 9.5 Taxes @ 40% 12.2 3.8. What are the a..
Suppose you believe that the economy is just entering a recession. Your firm must raise capital immediately using debt (bonds).
If the yield to maturity is 8.3 percent, what is the current price of the bond?
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