Use your calculator to determine​ (1) the current mortgage payment​ (2) the total interest​ paid, (3) the payment after the first adjustment and​ (4) the maximum payment for each of the following 138,200, ​30-year mortgages. Assume that the initial interest rate is 6.90 percent.

a. Annually​ adjustable, 1 percent per​ year, 5 percent lifetime cap. Assume also that rates increase at least 1 percent per year until they reach the lifetime cap and rates never again drop below the lifetime cap for the term of the mortgage.

b. Fixed for 3 years and then annually​ adjustable, 2 percent per​ year, 5 percent lifetime cap. Assume also that rates increase at least 2 percent per year until they reach the lifetime cap and rates never again drop below the lifetime cap for the term of the mortgage.

c. Fixed for 5 years then annually​ adjustable, 2 percent per​ year, 6 percent lifetime cap. Assume also that rates increase at least 2 percent per year until they reach the lifetime cap and rates never again drop below the lifetime cap for the term of the mortgage.

d. Fixed for 5 years and then adjustable every 5​ years, 3 percent per​ period, 6 percent lifetime cap. Assume also that rates increase at least 3 percent per year until they reach the lifetime cap and rates never again drop below the lifetime cap for the term of the mortgage.

a. The current mortgage payment is $ (Round to the nearest​ cent.)

The payment after the first adjustment is $ (Round to the nearest​ cent.)

The maximum payment is $ (Round to the nearest​ cent.)

The total interest paid for a 138,200, ​30-year mortgages $ (Round to the nearest​ cent.)

b.  The current mortgage payment is $ (Round to the nearest​ cent.)

The payment after the first adjustment is $ (Round to the nearest​ cent.)

The maximum payment is $1. (Round to the nearest​ cent.)

The total interest paid for a 138,200, ​30-year mortgages ​$. (Round to the nearest​ cent.)

c. The current mortgage payment is   $. (Round to the nearest​ cent.)

The payment after the first adjustment is $ (Round to the nearest​ cent.)

The maximum payment is $ (Round to the nearest​ cent.)

The total interest paid for a 138,200, ​30-year mortgages $ (Round to the nearest​ cent.)

d. The current mortgage payment is $ (Round to the nearest​ cent.)

The payment after the first adjustment is $ (Round to the nearest​ cent.)

The maximum payment is $ (Round to the nearest​ cent.)

The total interest paid for a 138,200, ​30-year mortgages ​$ (Round to the nearest​ cent.)

Harrimon Industries bonds have 5 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 8%.

a) What is the yield to maturity at a current market price of $792? Round your answer to two decimal places. %

b) What is the yield to maturity at a current market price of $1,068? Round your answer to two decimal places. %

c) Would you pay $792 for each bond if you thought that a "fair" market interest rate for such bonds was 13%-that is, if rd = 13%? (options listed below)

1) You would not buy the bond as long as the yield to maturity at this price is greater than your required rate of return.

2)You would not buy the bond as long as the yield to maturity at this price is less than the coupon rate on the bond.

3) You would buy the bond as long as the yield to maturity at this price is greater than your required rate of return.

4)You would buy the bond as long as the yield to maturity at this price is less than your required rate of return.

5) You would buy the bond as long as the yield to maturity at this price equals your required rate of return.

Calculate the Present Worth (PW), Future Worth (FW), and Equivalent Uniform Annual Series value of cash flows below at an interest rate of 8% compounded annually.

Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million and will produce net cash flows of $27 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares are expected to be zero, and the company's cost of capital is 11%.

1. By how much would the value of the company increase if it accepted the better project (plane)? Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Do not round intermediate calculations. Round your answer to two decimal places.

   $   million

2. What is the equivalent annual annuity for each plane? Enter your answers in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Do not round intermediate calculations. Round your answers to two decimal places.

   Plane A: $   million

   Plane B: $   million

Kim Inc. must install a new air conditioning unit in its main plant. Kim must install one or the other of the units; otherwise, the highly profitable plant would have to shut down. Two units are available, HCC and LCC (for high and low capital costs, respectively). HCC has a high capital cost but relatively low operating costs, while LCC has a low capital cost but higher operating costs because it uses more electricity. The costs of the units are shown here. Kim's WACC is 7.5%.

1. Which unit would you recommend?
   1. Since all of the cash flows are negative, the NPV's will be negative and we do not accept any project that has a negative NPV.
   2. Since all of the cash flows are negative, the IRR's will be negative and we do not accept any project that has a negative IRR.
   3. Since we are examining costs, the unit chosen would be the one that had the lower NPV of costs. Since LCC's NPV of costs is lower than HCC's, LCC would be chosen.
   4. Since we are examining costs, the unit chosen would be the one that had the lower NPV of costs. Since HCC's NPV of costs is lower than LCC's, HCC would be chosen.
   5. Since all of the cash flows are negative, the NPV's cannot be calculated and an alternative method must be employed.
2. If Kim's controller wanted to know the IRRs of the two projects, what would you tell him?
   1. There are multiple IRR's for each project.
   2. The IRR of each project is negative and therefore not useful for decision-making.
   3. The IRR cannot be calculated because the cash flows are all one sign. A change of sign would be needed in order to calculate the IRR.
   4. The IRR cannot be calculated because the cash flows are in the form of an annuity.
   5. The IRR of each project will be positive at a lower WACC.
3. If the WACC rose to 15% would this affect your recommendation?
   1. When the WACC increases to 15%, the NPV of costs are now lower for HCC than LCC.
   2. When the WACC increases to 15%, the IRR for LCC is greater than the IRR for HCC, LCC would be chosen.
   3. When the WACC increases to 15%, the IRR for HCC is greater than the IRR for LCC, HCC would be chosen.
   4. Since all of the cash flows are negative, the NPV's will be negative and we do not accept any project that has a negative NPV.
   5. When the WACC increases to 15%, the NPV of costs are now lower for LCC than HCC.
   
   
   Explain your answer and the reason this result occurred.
   1. The reason is that when you discount at a higher rate you are making negative CFs smaller thus improving the NPV.
   2. The reason is that when you discount at a higher rate you are making negative CFs higher thus improving the IRR.
   3. The reason is that when you discount at a higher rate you are making negative CFs higher thus improving the NPV.
   4. The reason is that when you discount at a higher rate you are making negative CFs higher and this lowers the NPV.
   5. The reason is that when you discount at a higher rate you are making negative CFs smaller and this lowers the NPV.
   
   

Your division is considering two projects with the following cash flows (in millions):

1. What are the projects' NPVs assuming the WACC is 5%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
   Project A    $   million
   Project B    $   million

   What are the projects' NPVs assuming the WACC is 10%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
   Project A    $   million
   Project B    $   million

   What are the projects' NPVs assuming the WACC is 15%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
   Project A    $   million
   Project B    $   million

2. What are the projects' IRRs assuming the WACC is 5%? Round your answer to two decimal places. Do not round your intermediate calculations.
   Project A   %
   Project B   %

   What are the projects' IRRs assuming the WACC is 10%? Round your answer to two decimal places. Do not round your intermediate calculations.
   Project A   %
   Project B   %

   What are the projects' IRRs assuming the WACC is 15%? Round your answer to two decimal places. Do not round your intermediate calculations.
   Project A   %
   Project B   %

3. If the WACC was 5% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 10.72%.)
   -Select-Project A Project B Neither A, nor B

   If the WACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 10.72%.)
   -Select-Project A Project B Neither A, nor B

   If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 10.72%.)
   -Select-Project A Project B Neither A, nor B

a. A coupon payment bond has a face value of $100 and sells at $94. The bond has a coupon rate of 7.5% and pays semi-annual coupons. The bond has a maturity of 30 years. What is the YTM?

b. What is the YTM if the same bond in a sells at $101?

c. What is the general relationship between bond price and market interest rate? (i.e. what does discount bond imply about market interest rate and coupon rate? What does premium bond imply about market interest rate and coupon rate?)

You are managing a portfolio of $1.0 million. Your target duration is 18 years, and you can choose from two bonds: a zero-coupon bond with maturity five years, and a perpetuity, each currently yielding 4%.

a. How much of (i) the zero-coupon bond and (ii) the perpetuity will you hold in your portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. How will these fractions change next year if target duration is now seventeen years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Wolfrum Technology​ (WT) has no debt. Its assets will be worth ​$451 million one year from now if the economy is​ strong, but only ​$213 million in one year if the economy is weak. Both events are equally likely. The market value today of its assets is ​$258 million. a. What is the expected return of WT stock without​ leverage? b. Suppose the​ risk-free interest rate is 5 %. If WT borrows ​$104 million today at this rate and uses the proceeds to pay an immediate cash​ dividend, what will be the market value of its equity just after the dividend is​ paid, according to​ MM? c. What is the expected return of WT stock after the dividend is paid in part ​(b​)d

You have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.93.

Calculate Jensen’s alpha for the fund, as well as its information ratio. (Do not round intermediate calculations. Enter the alpha as a percent rounded to 2 decimal places. Round the ratio to 4 decimal places.)

Jensen’s alpha %

Information ratio

a. A stock has an annual return of 14 percent and a standard deviation of 62 percent. What is the smallest expected loss over the next year with a probability of 1 percent? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round the z-score value to 3 decimal places when calculating your answer. Enter your answer as a percent rounded to 2 decimal places.)

b. Does this number make sense?

• Yes

• No

a. A stock has an annual return of 11 percent and a standard deviation of 44 percent. What is the smallest expected gain over the next year with a probability of 1 percent? (Do not round intermediate calculations. Round the z-score value to 3 decimal places when calculating your answer. Enter your answer as a percent rounded to 2 decimal places.)

b. Does this number make sense?

• Yes

• No

You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset:

Assume that the correlation of returns on Portfolio Y to returns on the market is 0.84. What is the percentage of Portfolio Y’s return that is driven by the market? (Round your answer to 4 decimal places.)

R-squared _____

Pharoah Chiropractic Clinic produces $260,000 of cash flow each year. The firm has no debt outstanding, and its cost of equity capital is 25 percent. The firm’s management would like to repurchase $520,000 of its equity by borrowing $520,000 at a rate of 9 percent per year. If we assume that the debt will be perpetual, find the cost of equity capital for Pharoah after it changes its capital structure. Assume that Modigliani and Miller Proposition 1 assumptions hold. (Round answer to 2 decimal places, e.g. 17.54%.)