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A 3/1 ARM is made for $150,000 at 7 percent with a 30-year maturity.
a. Assuming that fixed payments are to be made monthly for three years and that the loan is fully amortizing, what will be the monthly payments? What will be the loan balance after three years?
b. What would new payments be beginning in year 4 if the interest rate fell to 6 percent and the loan continued to be fully amortizing?
c. In (a) what would monthly payments be during year 1 if they were interest only? What would payments be beginning in year 4 if interest rates fell to 6 percent and the loan became fully amortizing?
Tracy Morgan Productions has 80,000 bonds outstanding that are selling at par. Bonds with similar characteristics are yielding 6.75 percent. The company also has 750,000 shares of 7 percent preferred stock and 2.5 million shares of common stock outst..
Consider a 3-month European put option on a non-dividend-paying stock, where the stock price is $60, the strike price is $60, the risk-free rate is 3% per annum. Stock price will either move up by 10% or down by 5%, every month. Price the put with bi..
A firm is expected to pay a dividend of $3.15 next year and $3.45 the following year. Financial analysts believe the stock will be at their price target of $100 in two years. Compute the value of this stock with a required return of 12.5 percent.
In 2012, Anheuser-Busch In Bev NY, maker of Budweiser and other beer, sold debt of varying maturities. According to an article in the Wall Street Journal: "The three-year notes priced with a risk premium of 0.5 percentage point over comparable Treasu..
It will cost $4,100 to acquire a small ice cream cart. Cart sales are expected to be $3,300 a year for five years. After the five years, the cart is expected to be worthless as that is the expected remaining life of the cooling system. What is the pa..
In what ways is preferred stock similar to long-term debt? In what ways is it similar to common stock? Discuss the similarities and differences between preferred stock and common stock & bonds.
Li-Jen borrows $36,000 for a home improvement project loan from the bank with 60-month fixed-rate financing at an annual interest rate of 5.7% compounded monthly. What is the amount of her monthly loan payment to amortize the loan?
All else equal, which of the following is most likely to increase a company's retained earnings breakpoint? A decrease in the fraction of equity used in the company's target capital structure. An increase in the company's dividend payout ratio.
Which bond offers the higher after tax yield? If you also pay a state income tax on taxable coupon interest at a 9 percent rate, but no tax on municipal interest, which bond offers the higher after tax yield?
Norma has one share of stock and one bond. The total value of the two securities is 1,245.64 dollars. The stock pays annual dividends. The next dividend is expected to be 5.88 dollars and paid in one year. In two years, the dividend is expected to be..
Scale versus riskiness tradeoff:- Interpret this condition in terms of a "cost of bringing 1 unit of investment to completion."
A company currently pays a dividend of $3 per share (D0 = $3). It is estimated that the company's dividend will grow at a rate of 16% per year for the next 2 years, then at a constant rate of 7% thereafter. The company's stock has a beta of 1.05, the..
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