Question

2.)What is the annualized discount rate % and your annualized investment rate % on a treasury bill that you purchase for $ 9,940 that will mature in 91 days for $ 10,000?


4.)What is the annualized discount and investment rate % on a treasury bill that you purchase for $ 9,900 that will mature in 91 days for $ 10,000.


6.)How much would you pay for a treasury bill that matures in 182 days and pays $ 10,000 if you require a 1.8% discount rate?


8.)How much would you pay for a treasury bill that matures in one year, and pays$ 10,000,if you require a 3% discount rate.


10.)The annualized yield is 3% for 91 day commercial paper and 3.5% for 182 day commercial paper. What is the expected 91 day commercial paper rate 91 days from now?


1.) A bond makes an annual $ 80 interest payment (8% coupon).The bond has five years before it matures at which time it will pay $ 1,000.Assuming a discount rate of 10%,what should be the price of the bond?

3.)Consider the two bonds described below.

                                                                Bond A    Bond B
Maturity (years)                                       15             20
Coupon rate (%) paid semiannually       10             6
Par value                                                 $1,000      $1,000

a.)if both bonds had required return of 8%,what would the bonds prices be?

b.)Describe what it means if a bond sells at a discount, a premium and at its face amount(par value).Are these two bonds selling at a discount, premium or par?

c.)If the required return on the two bonds rose to 10%
what would the bonds prices be.?


5.)Consider the following cash flows .All markets interest rates are 12%.

Year               0       1       2       3       4
Cash flow             160    170    180    230

a.)What price would you pay for these cash flows?What total wealth do you expect after 2.5 years if you sell the rights to the remaining cash flows?
Assume interest rates remain constant.

b.)What is the duration of these cash flows?

c.)Immediately after buying these cash flows all market interest rates drop to 11%.What is the impact on your total wealth after 2.5 years..?


7.) If the municipal bond rate is 4.25% and the corporate bond rate is 6.25%,what is the marginal tax rate assuming investors are indifferent between the two bonds?


9.) Assume the debt in the previous question is trading at $ 1,035.How can you earn a riskless profit from this situation (arbitrage)


11.) a $ 1,000 par bond with an annual coupon has only one year until maturity. Its current yield is $ 6.713%,and its yield to maturity is 10%.What is the price of the bond?


13.) A seven year $1,000 par bond has an 8% annual coupon bond and is currently yielding 7.5%.The bond can be called in two years at a call price of $ 1,010.What is the bond yielding assuming it will be called(known as the yield to call)?


15.) A 10 year $ 1,000 par value bond has a 9% semiannual coupon and a nominal yield to maturity of 8.8%.What is the price of the bond?


2.)Two common statistics in IPOS are underpricing and money left on the table. Underpricing is defined as percentage change between the offering price and the first day closing price. Money left on the table is the difference between the first day closing price and the offering price,multiplied by the number of shares offered.Calcualte the underpricing and money left on the table for eBay. What does this suggest about the efficiency of the IPO process?


4.)Suppose Soft People Inc,is selling at $ 19.00 and currently pays an annual dividend of $ 0.65 per share .Analysis’s project that the stock will be priced around $ 23.00 in one year. What is the expected return?


6.) Laser Ace is selling at $ 22.00 per share. The most recent annual dividend paid was $ 0.80.Using the Gordon growth model, if the market requires a return of 11% what is the expected dividend growth rate for Laser Ace?


8.) Suppose Microsoft Inc,is trading at $ 27.29 per share. It pays an annual dividend of $ 0.32 per share, which is double last years dividend of $ 0.16 per share. If this trend is expected to continue, what is the required return on Microsoft.?


10.) Macro Systems just paid an annual dividend of $ 0.32 per share. Its dividend is expected to double for the next four years.(D 1 through D 4)after which it will, grow at a more modest pace of 1% per year. If the required return is $ 13,what is the current price?

2.)Compute the face value of a 30 year fixed rate mortgage with a montly payment of $ 1,000,assuming a nominal interest rate of 9%.If the mortgage requires 5%down what is the maximum house price?


4.) Consider a 30 year fixed rate mortgage for $ 100,000 at a nominal rate of 9%.If the borrower pays an additional $100 with each payment ,how fast will the mortgage be paid off?


6.) Consider a 30 year fixed rate mortgage of $ 100,000 at a nominal rate of 9%. What is the duration of the loan?
If interest rates increase to 9.5% immediately after the mortgage is made, how much is the loan worth to the lender?


8.) A 30 year variable rate mortgage offers a first year teaser rate of 2%.After that the rate starts at 4.5%adjusted based on actual interest rates. The maximum rate over the life of the loan is 10.5%and the rate can increase by no more then 200 basis points a year. If the mortgage is for $ 250,000,what is the monthly payment during the first year.? Second year? What is the maximum payment during the fourth year?
What is the maximum payment ever?

Consider the following options available to a mortgage borrower:

10.)   
                   Loan amount       Interest rate %       Type of mortgage       Discount points
Option 1      $100,000             6.75                         30 years fixed               none
Option 2      $150,000             6.25                         30 year fixed                1
Option 3      $125,000             6.0                           30 year fixed                2

What is the effective annual rate for each option ?

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