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An investor obtained a fully amortizing mortgage 5 years ago for $95,000 at 11 percent for 30 years. Mortgage rates have dropped, so that a fully amortizing 25-year loan can be obtained at 10 percent. There is no prepayment penalty on the mortgage balance of the original loan, but three points will be charged on the new loan and other closing costs will be $2,000. All payments are monthly.
a. Should the borrower refinance if he plans to own the property for the remaining loan term? Assume that the investor borrows only an amount equal to the outstanding balance of the loan.
b. Would your answer to part (a) change if he planned to own the property for only five more years?
On July 5, a stock index futures contract was at 394.85.- Determine if an arbitrage opportunity was available, and explain what transactions were executed.
The Starr Co. just paid a dividend of $1.60 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year, indefinitely. Investors require a return of 10 percent on the stock. What is the current price?
Suppose you are asked to do a cash flow budget for the next 12 months for a newly opened baby health clinic. The budget must be done on a month-by-month basis. As the clinic has just opened you have no historical accounting data. The clinic is allowe..
What is the yield to maturity of a $1,000 par value bond with a coupon rate of 9.5% (semi-annual coupon payments) that matures in 28 years assuming the bond is currently selling for $838.13?rounded to one decimal place.
Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land 10 years ago for $6 million in anticipation of using it as a warehouse and distribution site, but the company..
Keyser Materials has 8 percent coupon bonds on the market with 19 years to maturity. The bonds make semiannual payments and currently sell for 102 percent of par. What is the current yield on Keyser Materials bonds? The YTM? The effective annual yiel..
A company enters into a short futures contract to sell 4,000 bushels of wheat for 150 cents per bushel. The initial margin is $3,000 and the maintenance margin is $2,000. What price change would lead to a margin call? Under what circumstances could $..
Suppose that Food Inc's capital sturcture features 55% equity, 45% debt, and that its before-tax cost of debt is 5%, while its cost of equity is 9%. If the appropriate weighted average tax rate is 40%, what will Food's WACC be? What is the net presen..
Suppose risk-free rate of return = 3%, market return = 9%, and Stock B’s return = 12%. Calculate Stock B’s beta. If Stock B’s betas were 0.80, what would be its new rate of return?
During 2015, Spartan Systems reported total sales of $300,000, at a price of $20 and per unit variable expenses of $12, for the sales of their single product. Improve the product quality which will increase direct material cost per unit by $2 ii. Inv..
this case is intended to be an introduction to the various methods used in capital budgeting and looks at some of the
Xytex Products just paid a dividend of $1.97 per share, and the stock currently sells for $44. If the discount rate is 11 percent, what is the dividend growth rate?
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