You want to buy an apartment priced at $300,000. You have saved a deposit of $30,000. The bank has agreed to lend you the $270,000 as a fully amortising loan with a term of 25 years. The interest rate is 12% pa and is not expected to change.
What will be your monthly payments? Remember that mortgage loan payments are paid in arrears (at the end of the month).
A project has the following cash flows:
| Project Cash Flows | |
| Time (yrs) | Cash flow ($) |
| 0 | -400 |
| 1 | 200 |
| 2 | 250 |
What is the Profitability Index (PI) of the project? Assume that the cash flows shown in the table are paid all at once at the given point in time. The required return is 10% pa, given as an effective annual rate.
You just signed up for a 30 year fully amortising mortgage loan with monthly payments of $1,500 per month. The interest rate is 9% pa which is not expected to change.
How much did you borrow? After 10 years, how much will be owing on the mortgage? The interest rate is still 9% and is not expected to change.
Stocks in the United States usually pay quarterly dividends. For example, the retailer Wal-Mart Stores paid a $0.47 dividend every quarter over the 2013 calendar year and plans to pay a $0.48 dividend every quarter over the 2014 calendar year.
Using the dividend discount model and net present value techniques, calculate the stock price of Wal-Mart Stores assuming that:
- The time now is the beginning of January 2014. The next dividend of $0.48 will be received in 3 months (end of March 2014), with another 3 quarterly payments of $0.48 after this (end of June, September and December 2014).
- The quarterly dividend will increase by 2% every year, but each quarterly dividend over the year will be equal. So each quarterly dividend paid in 2015 will be $0.4896 (##=0.48×(1+0.02)^1##), with the first at the end of March 2015 and the last at the end of December 2015. In 2016 each quarterly dividend will be $0.499392 (##=0.48×(1+0.02)^2##), with the first at the end of March 2016 and the last at the end of December 2016, and so on forever.
- The total required return on equity is 6% pa.
- The required return and growth rate are given as effective annual rates.
- All cash flows and rates are nominal. Inflation is 3% pa.
- Dividend payment dates and ex-dividend dates are at the same time.
- Remember that there are 4 quarters in a year and 3 months in a quarter.
What is the current stock price?
The below graph shows a project's net present value (NPV) against its annual discount rate.
Which of the following statements is NOT correct?
The expression 'you have to spend money to make money' relates to which business decision?
Question 771 debt terminology, interest expense, interest tax shield, credit risk, no explanation
You deposit money into a bank account. Which of the following statements about this deposit is NOT correct?
Question 883 monetary policy, impossible trinity, foreign exchange rate
It’s often thought that the ideal currency or exchange rate regime would:
1. Be fixed against the USD;
2. Be convertible to and from USD for traders and investors so there are open goods, services and capital markets, and;
3. Allow independent monetary policy set by the country’s central bank, independent of the US central bank. So the country can set its own interest rate independent of the US Federal Reserve’s USD interest rate.
However, not all of these characteristics can be achieved. One must be sacrificed. This is the 'impossible trinity'.
Which of the following exchange rate regimes sacrifices convertibility?