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You are looking at a one-year loan of $20,000. The interest rate is quoted as 7 percent plus four points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are very common with home mortgages. The interest rate quotation in this example requires the borrower to pay four points to the lender up front and repay the loan later with 7 percent interest.
What rate would you actually be paying here? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Interest rate %
What is the EAR for a one-year loan with a quoted interest rate of 10 percent plus two points? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
EAR %
Is your answer affected by the loan amount?
Yes
No
You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn has a reported equity beta of 1.7, a debt-to-equity ratio of .5, and a tax rate of 40 percent. Assume a risk-free rate of 6 percent a..
Combine two bio-tech stocks into a portfolio and the risk of that portfolio is not much different than the risks of the stocks themselves. Combine a breakfast cereal stock with an automotive stock and the portfolio risk is much less than the risks of..
The CAL provided by combinations of 1-month T-bills and a broad index of common stocks (i.e. market portfolio) is called the ______.
A $1,000 face value bond of Acme Inc. pays an annual coupon, carries a coupon rate of 7.25%, has 31 years to maturity, and sells at a yield to maturity of 6.45%. (a) What interest payments do bondholders receive each year?(b) At what price does the b..
Suppose a firm in planning to invest $ 1,000,000 to invest in a risk free asset and a risky asset A. Assume that µf = 0.05, µA = 0.10 and ?A = 0.17. The company has capital reserves that could cover $ 100, 000 but no more and would like as a result t..
In what circumstances would you choose to use a dividend discount model rather than a free cash flow model to value a firm? Why?
What is the required rate of return (yield) on the preferred stock? What is the price of the common stock?
The risk-free interest rate is 0.4% per month, and the stock's volatility (standard deviation) = 13% per month. Find the pseudo-American option value.
What is the stock's current value per share?
Use the appropriate Excel function to calculate the average annual percentage increase in the cost of a four-year college degree. Does your answer seem in line with what you thought the average annual percentage increase had been from 1990 to 2010? 2..
Which of the following amounts is the Powers' taxable income?
Assume the term structure of interest rates becomes inverted?, with short-term rates going to 14 percent and long-term rates 6 percentage points lower than short-term rates. Earnings before interest and taxes are $1,010,000. The tax rate is 30 percen..
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