$100,000 Amortizing Loan
9% stated rate
20-year amortization
5-year balloon
Annual Payments
a) Calculate annual payment
b) Calculate balloon payment
c) Value at 12% yield
d) Prepare an amortization table
In: Finance
Problem 4-19
Maturity Risk Premiums
Assume that the real risk-free rate, r*, is 2% and that inflation is expected to be 7% in Year 1, 6% in Year 2, and 3% thereafter. Assume also that all Treasury securities are highly liquid and free of default risk. If 2-year and 5-year Treasury notes both yield 10%, what is the difference in the maturity risk premiums (MRPs) on the two notes; that is, what is MRP5minus MRP2? Round your answer to two decimal places.
%
In: Finance
One year ago, you sold a put option on 35,000 Euros with an expiration date of one year for a premium of $0.03 per unit. The exercise price was $1.25/Euro. Assume that one year ago, the spot rate of the Euro was $1.23, the one-year forward rate was $1.24. Today, the euro spot rate is $1.21.
Determine the total dollar amount of your net profit or loss in the put option.
In: Finance
Exercise 1: Tariffs and Elasticity
A country imports 5 billion tonnes of coal per year and domestically produces another 4.5 billion tonnes of coal per year. The world price of coal is $50 per tonne. Assuming linear schedules, economists estimate the price elasticity of domestic supply to be 0.3 and the price elasticity of domestic demand to be 0.2 at the current equilibrium. Consider the changes in social surplus that would result from imposition of a $20 per tonne import fee on coal that would involve annual administrative costs of $125 million. Assume that the world price will not change as a result of the country imposing the import fee, but that the domestic price will increase by $20 per tonne. Assume national standing. Calculate the following:
(a) Quantity consumed after the imposition of the import fee.
(b) Quantity produced after the imposition of the import fee.
(c) Quantity imported after the imposition of the import fee.
(d) Estimate the annual social net benefits of the import fee.
In: Economics
Use Worksheet 9.2. Ben West, a 35-year-old computer programmer, earns $57,000 a year. His monthly take-home pay is $3,000. His wife, Ashley, works part-time at their children's elementary school but receives no benefits. Under state law, Ashley's employer contributes to a workers' compensation insurance fund that would provide $2,050 per month for six months if Ben were disabled and unable to work.
In: Accounting
- A stock is expected to pay a dividend of $2.25 at the end of the year (i.e., D1 = $2.25), and it should continue to grow at a constant rate of 5% a year. If its required return is 15%, what is the stock's expected price 4 years from today?
- Assume that today is December 31, 2019, and that the following information applies to Abner Airlines:
After-tax operating income [EBIT(1 - T)] for 2020 is expected to
be $450 million.
The depreciation expense for 2020 is expected to be $190
million.
The capital expenditures for 2020 are expected to be $225
million.
No change is expected in net operating working capital.
The free cash flow is expected to grow at a constant rate of 6% per
year.
The required return on equity is 15%.
The WACC is 12%.
The firm has $206 million of non-operating assets.
The market value of the company's debt is $3.304 billion.
130 million shares of stock are outstanding.
Using the corporate valuation model approach, what should be the company's stock price today?
In: Finance
From an accounting perspective, college athletic departments are rarely self-sufficient yet coaches’ salaries increase year-after-year. Apply economic perspectives to explain this seeming dichotomy.
In: Economics
O.P., an unmarried 15-year-old high school student, finds herself pregnant by her 17-year-old boyfriend of several months. She estimates she is 10 weeks pregnant and visits a doctor to ask for an abortion.
O.P.’s parents have made it very clear that they would no longer allow her to live at home and would withdraw all financial support were she to become pregnant before marriage. O.P. has always aspired to attend college and graduate school. Her family knows about her relationship with the young man but they are unaware of its sexual nature. In her country, the law requires parental consent in all health care services for minors under the age of 16 years. It also provides for abortion for any woman upon request, up to 12 weeks of pregnancy. However, the doctor refuses to perform an abortion for O.P. unless one of her parents provides consent for the procedure.
Questions for discussion
What are the medical issues in this case? Specifically:
What are the health risks and benefits of a termination procedure at 10 weeks’ gestation?
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How do these risks change if the procedure is delayed for a further 4–6 weeks?
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What are the health risks if this girl undergoes an unsafe abortion?
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What are the likely health and social outcomes of a pregnancy for this 15-year old?
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How does the law in the United States recognize the principles of evolving capacity or best interest of the child as it applies to medical care?
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How do your responses to the above questions guide your support of O.P.’s decision-making authority free from parental consent?
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What is autonomy?
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What are ethics?
In: Nursing
Given the following:
|
Spot Rate Argentine Peso |
$0.39 |
|
One-year interest rate U.S. |
7 percent |
|
One-year Argentine interest rate |
12 percent |
|
Futures price = forward price |
|
|
Interest rate parity exists |
Investor purchased futures contracts on Argentine Peso representing 1,000,000 pesos.
Determine the total dollar amount of profit (loss) from this futures contract based on expectation Argentine peso will be worth $0.41 in one year.
Your firm has recently issued some fixed rate debt but would prefer to re-structure the debt using an interest rate swap to a floating rate of debt because your firm believes rates will be trending downward over the next several years. Listed below are the details for the existing debt and the desired floating debt:
|
Fixed rate debt: |
10 percent |
|
|
Swap payments: |
LIBOR plus 1 percent |
|
|
Expected LIBOR rates: |
||
|
End of year 1: |
9 percent |
|
|
End of year 2: |
8.5 percent |
|
|
End of year 3: |
7 percent |
|
After executing the interest rate swap determine the rate your firm expects to pay on its debt over the next 3 years.
Project Information for firm ABC:
Will export product to Mexico and is looking for firm to swap pesos with over life of project
Time period of project is 4 years
After tax cash flow expected to be 1,000,000 pesos
Peso’s spot rate is $0.20
Risk free annual interest rates: U.S. 6 percent, Mexico 11 percent
Interest rate parity exists
Use one year one year forward rate as predictor of exchange rate in one year
Exchange rates will change by same percentage predicted for year one in years 2 through 4
Firm XYZ will take the 1,000,000 pesos each year at an exchange rate of $0.17 per peso
Ignore taxes
ABCs details:
|
Capital Structure: |
60 percent debt and forty percent equity |
|
Corp. Tax rate: |
30 percent |
|
Debt financing cost: |
10 percent |
|
US expected stock returns: |
18 percent |
|
Beta: |
0.9 |
ABC will use its cost of capital as required return on project
Determine the NPV if ABC enters into a swap agreement with XYZ and does not hedge its position.
In: Finance
A 5 year AA rated corporate bond has a nominal yield spread over a 5 year Treasury of 50 basis points. A 7 year BBB corporate bond has a nominal yield spread over the same treasury of 1.50%. Neither corporate bond has any embedded options. Please identify the risks that may explain the difference in the yield spreads of the AA and BBB bonds?
In: Finance