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The mortgage on your house is 5 years old. It required monthly payments of 1,422, had an original term of 30 years, and had an interest rate of 10% (APR –monthly). In the intervening 5 years, interest rates have fallen and so you have decided to refinance – that is, you will roll over the outstanding balance into a new mortgage. The new mortgage has a 30-year term, requires monthly payments, and has an interest rate of 6.625% (APR – monthly).
a) What monthly repayments will be required with the new loan?
b) If you still want to pay off the mortgage in 25 years, what monthly payment should you make after you refinance?
c) Suppose you are willing to continue making payments of 1422. How long will it take you to pay off the mortgage after refinancing?
d) Suppose you are willing to continue making payments of 1422, and want to pay off the mortgage in 25 years. How much additional cash can you borrow today as part of the refinancing?
Assume that long-term corporate bonds had an average return of 5.3 percent and a standard deviation of 9.3 percent for a 30-year period. What range of returns would you expect to see on these bonds 68 percent of the time?
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Someone told you that the table on page 45 of the Cohen Finance Book does not apply to companies like Microsoft or Apple that have much larger profit ratios, not the 1.6% displayed in C4. Is this true or false? Explain.
The treasurer of Riley Coal Co. is asked to compute the cost of fixed income securities for her corporation. Even before making the calculations, she assumes the aftertax cost of debt is at least 3 percent less than that for preferred stock. Compute ..
Beta Industries has net income of $3,400,000, and it has 1,085,000 shares of common stock outstanding. The company's stock currently trades at $65 a share. Beta is considering a plan in which it will use available cash to repurchase 30% of its shares..
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