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You are currently in the 7th year of a 25-year fixed rate, fully amortized mortgage with monthly payments, with the lock-in period of 10 years (prepayment penalty is 2% of the remaining balance). Assume that rate doesn’t change over the life of the loan. You originally borrowed $150,000 with a 9.50% annual interest rate. Interest rates are expected to be lower, so you are considering the feasibility of refinancing the loan. To refinance, closing costs are expected to be 3.25% of the new loan amount. Assume no prepayment penalty with new loans.
A) Using a spreadsheet, calculate the new loan payments for every eighth of a percent from a revised interest rate of 6.5% to 9.0%. Assume you will refinance at the end of the 7th year of the mortgage with prepayment penalty and closing costs included in the new loan and you do not wish to extend the length of the mortgage beyond its current length (i.e. the maturity of the new loan is 18 years from now).
B) How low must interest rates go in order for you to breakeven?
C) Using the spreadsheet graphics, plot the new interest rates versus the new mortgage payments and show the breakeven point.
The cost of retained earnings is less than the cost of new outside equity capital. Consequently, it is totally irrational for a firm to sell a new issue of stock and to pay cash dividends during the same year. Discuss the meaning of those statements.
A bond currently sells for $1,080, which gives it a yield to maturity of 7%. Suppose that if the yield increases by 50 basis points, the price of the bond falls to $1,050. What is the duration of this bond?
Suppose Procter and Gamble? (P&G) is considering purchasing $10 million in new manufacturing equipment. If it purchases the? equipment, it will depreciate it on a? straight-line basis over the five? years, after which the equipment will be worthless...
The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: The company faces a 30% tax rate. What is the project's operating cash flow for the first year (t = 1..
A tax levied on a business will:
Assume that the average firm in your company's industry is expected to grow at a constant rate of 6% and that its dividend yield is 7%. After Year 2, divdend growth will be constant at 6%. What is the required rate of return on your company's stock? ..
A company issued a bond with the following conditions: Sales price = SEK 1000, strike price = 1100 SEK , coupon = 80 and the number of outstanding year for the bond is 10. Calculate and answer what the bond is worth.
S. Ramos Company’s stock has a required rate of return of 11.50%, and it sells for $25.00 per share. Goode's dividend is expected to grow at a constant rate of 7.00%. What was the last dividend, D0? show work.
Describe the three categories of ratios used in ratio analysis. When working on assessing the company you chose, which of these ratios do you think is the most important indicator of successful performance, why?
Would the tangency portfolio invest in more or less H if the risk-free rate were 3% instead of 4%? - What would you expect its monthly mean and standard deviation to be?
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $790 per set and have a variable cost of $390 per set. The company has spent $149,000 for a marketing study that determined the company will sell 53,000 sets per year ..
You purchased one EAW, Inc. 6 percent coupon bond one year ago for $1,020. The bond makes annual payments and matures four years from now. You sell the bond today when the required return is 5 percent. The inflation rate was 2.8 percent over the past..
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