You just borrowed $400,000 in the form of a 25 year interest-only mortgage with monthly payments of $3,000 per month. The interest rate is 9% pa which is not expected to change.
You actually plan to pay more than the required interest payment. You plan to pay $3,300 in mortgage payments every month, which your mortgage lender allows. These extra payments will reduce the principal and the minimum interest payment required each month.
At the maturity of the mortgage, what will be the principal? That is, after the last (300th) interest payment of $3,300 in 25 years, how much will be owing on the mortgage?
A company's shares just paid their annual dividend of $2 each.
The stock price is now $40 (just after the dividend payment). The annual dividend is expected to grow by 3% every year forever. The assumptions of the dividend discount model are valid for this company.
What do you expect the effective annual dividend yield to be in 3 years (dividend yield from t=3 to t=4)?
Question 327 bill pricing, simple interest rate, no explanation
On 27/09/13, three month Swiss government bills traded at a yield of -0.2%, given as a simple annual yield. That is, interest rates were negative.
If the face value of one of these 90 day bills is CHF1,000,000 (CHF represents Swiss Francs, the Swiss currency), what is the price of one of these bills?
Question 455 income and capital returns, payout policy, DDM, market efficiency
A fairly priced unlevered firm plans to pay a dividend of $1 next year (t=1) which is expected to grow by 3% pa every year after that. The firm's required return on equity is 8% pa.
The firm is thinking about reducing its future dividend payments by 10% so that it can use the extra cash to invest in more projects which are expected to return 8% pa, and have the same risk as the existing projects. Therefore, next year's dividend will be $0.90. No new equity or debt will be issued to fund the new projects, they'll all be funded by the cut in dividends.
What will be the stock's new annual capital return (proportional increase in price per year) if the change in payout policy goes ahead?
Assume that payout policy is irrelevant to firm value (so there's no signalling effects) and that all rates are effective annual rates.
An equity index is currently at 5,000 points. The 2 year futures price is 5,400 points and the total required return is 8% pa with continuous compounding. Each index point is worth $25.
What is the implied continuous dividend yield as a continuously compounded rate per annum?
Question 743 price gains and returns over time, no explanation
How many years will it take for an asset's price to triple (increase from say $1 to $3) if it grows by 5% pa?
Question 895 comparative advantage in trade, production possibilities curve
Adam and Bella are the only people on a remote island.
Luckily there are Coconut and Date palm trees on the island that grow delicious fruit. The problem is that harvesting the fruit takes a lot of work.
Adam can pick 7 coconuts per hour, 6 dates per hour or any linear combination of coconuts and dates. For example, he could pick 3.5 coconuts and 3 dates per hour.
Bella can pick 3 coconuts per hour, 5 dates per hour or any linear combination. For example, she could pick 1.5 coconuts and 2.5 dates per hour.
This information is summarised in the table and graph:
| Harvest Rates Per Hour | ||
| Coconuts | Dates | |
| Adam | 7 | 6 |
| Bella | 3 | 5 |
Which of the following statements is NOT correct?
Question 976 comparative advantage in trade, production possibilities curve, no explanation
Arthur and Bindi are the only people on a remote island. Their production possibility curves are shown in the graph.
Which of the following statements is NOT correct?