You just signed up for a 30 year interest-only mortgage with monthly payments of $3,000 per month. The interest rate is 6% pa which is not expected to change.
How much did you borrow? After 15 years, just after the 180th payment at that time, how much will be owing on the mortgage? The interest rate is still 6% and is not expected to change. Remember that the mortgage is interest-only and that mortgage payments are paid in arrears (at the end of the month).
The following equation is the Dividend Discount Model, also known as the 'Gordon Growth Model' or the 'Perpetuity with growth' equation.
### p_0 = \frac{d_1}{r - g} ###
Which expression is NOT equal to the expected dividend yield?
Bonds X and Y are issued by the same company. Both bonds yield 10% pa, and they have the same face value ($100), maturity, seniority, and payment frequency.
The only difference is that bond X pays coupons of 6% pa and bond Y pays coupons of 8% pa. Which of the following statements is true?
Question 497 income and capital returns, DDM, ex dividend date
A stock will pay you a dividend of $10 tonight if you buy it today. Thereafter the annual dividend is expected to grow by 5% pa, so the next dividend after the $10 one tonight will be $10.50 in one year, then in two years it will be $11.025 and so on. The stock's required return is 10% pa.
What is the stock price today and what do you expect the stock price to be tomorrow, approximately?
A firm has a debt-to-equity ratio of 25%. What is its debt-to-assets ratio?
Question 639 option, option payoff at maturity, no explanation
Which of the below formulas gives the payoff ##(f)## at maturity ##(T)## from being short a put option? Let the underlying asset price at maturity be ##S_T## and the exercise price be ##X_T##.
Question 760 time calculation, interest only loan, no explanation
Five years ago (##t=-5## years) you entered into an interest-only home loan with a principal of $500,000, an interest rate of 4.5% pa compounding monthly with a term of 25 years.
Then interest rates suddenly fall to 3% pa (##t=0##), but you continue to pay the same monthly home loan payments as you did before. Will your home loan be paid off by the end of its remaining term? If so, in how many years from now? Measure the time taken to pay off the home loan from the current time which is 5 years after the home loan was first entered into.
Assume that the lower interest rate was given to you immediately after the loan repayment at the end of year 5, which was the 60th payment since the loan was granted. Also assume that rates were and are expected to remain constant.
Use the below information to value a levered company with constant annual perpetual cash flows from assets. The next cash flow will be generated in one year from now, so a perpetuity can be used to value this firm. Both the operating and firm free cash flows are constant (but not equal to each other).
Data on a Levered Firm with Perpetual Cash Flows | ||
Item abbreviation | Value | Item full name |
##\text{OFCF}## | $48.5m | Operating free cash flow |
##\text{FFCF or CFFA}## | $50m | Firm free cash flow or cash flow from assets |
##g## | 0% pa | Growth rate of OFCF and FFCF |
##\text{WACC}_\text{BeforeTax}## | 10% pa | Weighted average cost of capital before tax |
##\text{WACC}_\text{AfterTax}## | 9.7% pa | Weighted average cost of capital after tax |
##r_\text{D}## | 5% pa | Cost of debt |
##r_\text{EL}## | 11.25% pa | Cost of levered equity |
##D/V_L## | 20% pa | Debt to assets ratio, where the asset value includes tax shields |
##t_c## | 30% | Corporate tax rate |
What is the value of the levered firm including interest tax shields?
Below is the Australian central bank’s cash rate.
From 2011 to 2017 the Australian central bank has implemented: