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Real versus nominal interest rates
A. Suppose the 30 year mortgage interest rate rises from 3 percent to 5 percent, and simultaneously the expected rate of inflation rises from 1 percent to 4 percent. What is the approximate change in the real interest rate? Will the demand for mortgages rise or fall as a result of these changes? Please explain.
B. In the year 2007, the Zimbabwe economy was estimated to have an inflation rate of 66,000 percent (i.e., π=660). (That is, prices were 660 times higher by the end of the year!) What nominal annual interest rate would a Zimbabwe lender making a loan and expecting repayment in Zimbabwe dollars at the end of the year need to charge in order to get a real interest rate of 5 percent? Use the exact formula for the real interstate. If instead the lender used the approximation formula, what nominal interest rate would have been charged?
A $1,000 par value 10-year bond with a 10 percent coupon rate recently sold for $900. The yield to maturity is:
What is the yield to maturity on a Treasury STRIPS with 11 years to maturity and a quoted price of 63.695?
Project K costs $55,000, its expected cash inflows are $13,000 per year for 8 years, and its WACC is 12%. What is the project's payback? Round your answer to two decimal places.
Find a call option and put option for a publicly traded company that have the same expiration date and exercise price. Calculate the price of the call and put options using the Black-Sholes pricing model. Assume r = 1% and σ = .20
What is the formula for determining the future value of an amount?
you need to gather the appropriate information so an objective decision could be made whether to pursue this investment opportunity or not. Your explicit assignment is to gather the appropriate information and be specific. Describe in detail how y..
Which of the following ratios is the coverage ratio?
Air products and Chemicals sold $125 million of notes in Nov. of 2003 with a December 1. 2010, maturity date. The bonds were sold at a discount of $99.721 per $100 with a coupon rate of 4.125%. Assume that bonds with a face value if $10,000 were purc..
Compute the unit sales price at which Blake must sell its product in the current year in order to earn a budgeted target profit of £200,000 - Calculate a value in response Unhappy about the prospect of a price increase, Blake's sales manager wou..
Dodge Ball Bearings had sales of 19,000 units at $65 per unit last year. The marketing manager projects a 15 percent increase in unit volume sales this year with a 20 percent price decrease (due to a price reduction by a competitor). Returned merchan..
Jenkins Security has learned that a rival has offered to supply a parking garage with security of ten years for $40,000 up front and a further $20,000 per year. Different division with differing line of business use different costs of capital becaus..
You need a 30-year fixed rate mortgage to buy a new home for $290,000. Your mortgage bank will lend you the money at a 5.85 percent APR for this 360-month loan. However, you can afford monthly payments of only $1,300, so you offer to pay off any rema..
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