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Suppose that five years ago you borrowed $500,000 using a 30-year fixed-rate mortgage with an annual interest rate of 8% with monthly payments and compounding. The interest rate on 30-year fixed-rate mortgages has fallen to 7.5% and you are wondering whether you should refinance the loan. Refinancing costs are expected to be 5% of the new loan amount.
a. What is the net present value of refinancing if you make all of the scheduled payments on the new loan?
b. What is the net present value of refinancing if you pay off the new loan at the end of the 3rd year?
c. How many payments do you need to make on the new loan in order for refinancing to have a positive net present value?
A 20-year bond has 8% annual coupons, a par value of $1000, and a redemption value of $1000. Coupons are invested at a nominal annual rate of 5% convertible semi-annually. X is the highest price that an investor can pay for the bond and obtain an eff..
The bonds of B&C, Inc. are currently priced at $ 819.62 and have a 13.23 percent coupon. The bonds pay interest semi-annually and mature in 12 years. What is the current yield, in percentage, on these bonds? An AT&T bond has 22 years until maturity, ..
Suppose you have $1,500 and plan to purchase a 5-year certificate of deposit (CD) that pays 3.5% interest, compounded annually. How much will you have when the CD matures?
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Joey realizes that he has charged too much on his credit card and has racked up $3,900 in debt. If he can pay $175 each month and the card charges 16 percent APR (compounded monthly), how long will it take him to pay off the debt? (Do not round inter..
Ballentine Inc., which has a zero tax rate due to tax loss carry-forwards, is considering a 6-year, $5,000,000 bank loan in order to buy a new piece of equipment. The loan will be amortized over 6 years with end-of-year payments and has an interest r..
The initial cost of a piece of equipment is $10,000, and it has a salvage value at the end of its 10 year life of $1,000. Maintenance cost is estimated to be $500 the first year and increase $50 per year to the end of its 10 year life. If the company..
Which of the following statements regarding operating and cash cycles is true?
Geroge Tanner died October 2, 2014, survived by his son Thomas and his daughter Gigi and her two children. George was the sole stockholder of Tanner Inc., a C corporation. Gigi served as president of Tanner from its inception until early January 2015..
Consider the following cashflows: $110 at year 1,$220 at year 2,$300 at year 3,$400 at year 3,$500 at year 5. Assume the following zero coupon rates 1% for year 1, 2% for year 2, 3% for year 3,4% for year 4,5% for year 5. What is the MTM of the cashf..
Determine the annualized cost of the loan for each of the given outcomes. Interest is based on 90 days and a 360-day year.
Suppose a firm pays a dividend on it's stock at the end of every period, the stock beta is 1.2, the firm just paid a dividend in the amount of $3.9, and dividends are expected to grow two percent every period forever. If the expected return on the ma..
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