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Sharon borrows an adjustable rate loan (ARM) of $100,000 with 3 year loan maturity. The initial interest rate for the loan is 8.5%, the margin is 3%, the loan amortization period is 15 years, the frequency of adjustment is 1 year (monthly compounding), no interest rate cap or payment cap. There will be a discount point of 3% for the loan. Also, the index rates for the next 2 years are 11% and 8%, respectively. What will be the effective mortgage yield for borrowing this loan?
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Smith Inc. issued a bond with an annual coupon rate of 10% with interest paid Semi Annually. The bond matures in 15 years. The par value of the bond is $1,000. If your required return for this type of bond is 5%, what is the price you are willing to ..
Consider a bond with coupon rate of 7% and a par value of $1,000. The maturity for this bond is greater than one year. Also assume that the required yield by the market for this bond is 8%.
A stock has a beta of .7 and an expected return of 17 percent. A risk-free asset currently earns 4.8 percent. What is the expected return on a portfolio that is equally invested in the two assets? If a portfolio of the two assets has a beta of 1.27, ..
Projects S and L are equally risky, mutually exclusive, and have normal cash flows. Project S has an IRR of 15%, while Project L’s IRR is 12%.
Find the present values of these ordinary annuities. Discounting occurs once a year.
Your aunt and uncle have asked your help in setting up their estate plan. They currently have $3,000,000 in their retirement fund. They wish to know the maximum amount that they can withdraw each month over a twenty-five year period and still have $8..
Weston Industries has a debt–equity ratio of 1.7. Its WACC is 9.6 percent, and its pretax cost of debt is 7 percent. The corporate tax rate is 35 percent. What is the company’s cost of equity capital? What is the company’s unlevered cost of equity ca..
You are considering setting up a firm to produce widgets. The cost of the project is $30 today. The demand for widgets is uncertain. It can be either high or low with equal probability. When the demand is high cash flows in t = 1 are $66 and when the..
Your father is about to retire. His firm has given him the option of retiring with a lump sum of $20,000 (Option A) or receiving $2,500 a year for the next 10 years (starting a year from now) – Option B. Which is worth more now, if the discount rate ..
Assume that a discount rate of 8 percent is used, which alternative has the highest present value?
Which of the following would not affect the reconciliation of Net Income to Net Cash Provided by a firm?
Discuss which types of retailers are now competing with department stores.
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