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A basic ARM is made for $200,000 at an initial interest rate of 6% for 30 years with an annual reset date. The borrower believes that the interest rate at the beginning of year (BOY) 2 will increase to 7%.
a. Assuming that a fully amortizing loan is made, what will monthly payments be during year 1?
b. Base on (a) what will the loan balance be at the end of year (EOY) 1?
c. Given that the interest rate is expected to be 7 percent at the beginning of year 2, what will the monthly payments be during year 2?
d. what will be the loan balance at the end of the year?
e. What would be the monthly payments i year 1 if they are to be interest only.
Suppose we have the following returns for large-company stocks and Treasury bills over a six year period: Year) Large Company /US Treasury Bill 1 3.99 /4.59 2 14.16 /4.94 3 19.25 /3.86 4 –14.43/ 6.99 5 –31.92 /5.30 6 37.49 /6.20. Calculate the arith..
Elle Mae Industries has a cash balance of $55,000, accounts payable of $175,000; inventory of $215,000; accounts receivable of $275,000; notes payable of $215,000; and accrued wages and taxes of $45,000. How much net working capital does the firm nee..
If the standard deviation of the return on the Swiss bond in terms of the franc is 12%, the standard deviation of the exchange rate is 10%, and the correlation between the Swiss franc return on the bond and the rate of change in the exchange is 0.3, ..
A convertible bond has a 8 percent coupon, paid semiannually, and will mature in 20 years. If the bond were not convertible, it would be priced to yield 7 percent. The conversion ratio on the bond is 20 and the stock is currently selling for $53 per ..
Determinants of Interest Rate for Individual Securities The Wall Street Journal reports that the rate on 3-year Treasury securities is 8.00 percent, and the 6-year Treasury rate is 8.20 percent. Further, you expect that real interest rates will be 4...
Lissa Co.'s stock price is currently $30.25. A 6-month call option on Lissa.'s stock has a strike price of $25 and has an expected volatility of 40% (i.e., expected standard deviation = 40%). The risk-free rate is 6%. According to the Black-Scholes o..
At the end of the year, gross fixed assets was $1,845 million. Duffy's free cash flow for the year was $433 million. Calculate the end-of-year balance for net operating working capital.
The tip-top paving company has a beta of 1.11 a cost of debt of 11% and a debt to value ratio of .6. The current risk free rate is 9 % and the market rate of return is 16.18%. What is the company's cost of equity capital?
Delivery and installation of the new line are expected to cost an additional $100,000. Assuming Fleming's marginal tax rate is 40 percent, calculate the net investment for the new line.
Suppose you are working with two factor portfolios, portfolio 1 and portfolio2. The portfolios hace expected returns of 12% and 9%, respectively. Based on this information, what would be the expected return on well-diversified portfolio A, if A has a..
What is the present value of a perpetuity that pays you annual, end-of-year payments of $950.00? Use a nominal rate (monthly compounding) of 7.50%.
Capital budgeting involves all of the following steps, except:
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