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Suppose that five years ago you borrowed $500,000 using a 30-year fixed-rate mortgage with an annual interest rate of 8% with monthly payments and compounding. The interest rate on 30-year fixed-rate mortgages has fallen to 7.5% and you are wondering whether you should refinance the loan. Refinancing costs are expected to be 5% of the new loan amount.
a. What is the net present value of refinancing if you make all of the scheduled payments on the new loan?
b. What is the net present value of refinancing if you pay off the new loan at the end of the 3rd year?
c. How many payments do you need to make on the new loan in order for refinancing to have a positive net present value?
Maple Aircraft has issued a convertible subordinated debenture at 6.00% interest due 2020. The conversion price is $64.00 and the debenture is callable at 104.00% of face value. If the conversion ratio were 48.25, what would be the conversion price?
A stock has had returns of 9 percent, 27 percent, 15 percent, −15 percent, 27 percent, and −6 percent over the last six years. What are the arithmetic and geometric returns for the stock?
What two factors affect the return on short-term investments? What investments should you consider to achieve liquidity and an adequate return?
A firm is considering purchasing a factory for $1 million. The factory will yield a cash flow of CF1 = $200,000 in one year, a cash flow of CF2 = $300,000 in two years, and then will be sold for CF3 = $900,000 in three years. The appropriate interest..
The current price of a stock is $94, and three-month European call options with a strike price of $95 currently sell for $4.70. An investor who feels that the price of the stock will increase is trying to decide between buying 100 shares and buying 2..
The finance industry is in the midst of a transformative period of evolution, and financial economists have a huge agenda to tackle. Capital Marketing Theory and the Efficient Market Hypothesis are two common concepts used to describe the relationshi..
An independent investment is acceptable if the profitability index (PI) of the investment is: greater than one. greater than the internal rate of return. greater than a pre-specified rate of return. less than one. less than the internal rate of retur..
Assume you have recently graduated with your business degree, and landed a new position at a company you had been researching during your senior year in college. You have been offered a lump-sum, sign-on bonus of $5,000. Would you personally choose ..
Boeing, whose global sales are generally dollar denominated, finds it has excess cash of $55,000,000,000, which it can invest for up to three years. Assume that the annual interest amount is reinvested, i.e. compounds, at the same annual interest rat..
Firm BestHockeySticks needs to buy rubber to manufacture their hockey pucks. Specifically, they need to buy 3 tons of rubber for next winter, January 2017 (T = 3/4). The future price of rubber is uncertain. BestHockeySticks buys 2 Call options with s..
Which type of company do you think will have a higher beta: fast-food chain or a cruise-ship firm? Why.- How can investors hold a portfolio with a weight of more than 100 percent in a particular asset.
The term structure of interest rates is upward-sloping. - What is the answer when the term structure of interest rates is downward-sloping?
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