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Sam bought a house for $150,000 with some creative financing. The bank, which agreed to lend Sam $120,000 for 6 years at 15% interest, took a first mortgage on the house. The Joneses, who sold Sam the house, agreed to lend Sam the remaining $30,000 for 6 years at 12% interest. They received a second mortgage on the house. Thus Sam became the owner without putting up any cash. Sam pays $1500 a month on the first mortgage and $300 a month on the second mortgage. In both cases these are "interest only" loans, and the principal is due at the end of the loan.
Sam rented the house to Justin and Shannon, but after paying the taxes, insurance, and so on, he had only $800 left, so he was forced to put up $1000 a month to make the monthly mortgage payments. At the end of 3 years, Sam sold the house for $205,000. After paying off the two loans and the real estate broker, he had $40, 365 left. After taking an 8% inflation rate into account, what was his before-tax rate of return?
A stock is expected to pay a year-end dividend of $2.00 a share (D1 = $2.00). The dividend is expected to decline at a constant rate of 5% per year (g = -5%). The company’s expected and required rate of return is 15%. The company’s current stock pri..
Your portfolio is diversified. It has an expected return of 11% and a beta of 1.10. You want to add 200 shares of Tundra Corporation at $40 a share to your portfolio. Tundra has an expected return of 13.0% and a beta of 1.50. The total value of the i..
Which of the following is NOT a primary goal of the Federal Reserve?
Sarkissian and Schill (2004) claim that cross-listing firms tend to prefer cross-listing in markets "close to home." Can you see evidence in favor of this hypothesis in the listing data for 2010?
A firm is considering a project that will generate perpetual after-tax cash flows of $24,500 per year beginning next year.
Your uncle has $1,025,000 and wants to retire. He expects to live for another 25 years, and he also expects to earn 7.5% on his invested funds. How much could he withdraw at the beginning of each of the next 25 years and end up with zero in the accou..
Plot the contingency graph for the option. Be sure to label maximum gains/losses, the breakeven point, and moneyness for both the buyer and seller.
John purchased 100 shares of Black Forest Inc. stock at a price of $159.83 three months ago. He sold all stocks today for $160.60. During this period the stock paid dividends of $5.85 per share. What is John’s annualized holding period return (annual..
W.C. cycling had $63,000 of cash at year end 2011 and $14,000 in cash at year end 2012. the firm invested in property, plant, and equipment totaling $190,000. cash flow from financing activities totaled +$210,000. what was the cash flow from operatin..
The interest rates in Canada and the United States are 6% and 5% per annum, respectively, with continuous compounding. The spot price of the Canadian dollar is $0.8000.
Select an organization you have worked for or any organization of interest and discuss how decision analysis could be used to solve a business problem. Describe a decision tree and discuss how such a tool can be utilized to improve decision making.
You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 21 million. The cash flows from the project would be SF 5.9 million per year for the next five years. The dollar required ..
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