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Managerial Finance 476 (II)

21. Beverly Hills started a paper route on January 1, 1995. Every three months, she deposits $300 in her bank account, which earns 8 percent annually but is compounded quarterly. On December 31,1998, she used the entire balance in her bank account to invest in a certificate of deposit at 12 percent annually. How much will she have on December 31, 2001?

Subject:

Business

Topic:

Finance

Posting ID:

18968

OTA ID:

101733

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Managerial Finance 476(II): Mortgages: annual payments, interest over the life of the loan,

Jim Thomas borrows $70,000 toward the purchase of a home at 12 percent interest. His mortgage is for 30 years. a. How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation. We will get a reasonably accurate answer.) b. How much interest will he pay over the life of the loan? c. How much should he be willing to pay to get out of a 12 percent mortgage and into a 10 percent mortgage with 30 years remaining on the mortgage? Suggestion: Find the annual savings and then discount them back to the present at the current interest rate (10 percent).

Subject:

Business

Topic:

Finance

Posting ID:

18969

OTA ID:

103060

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Managerial Finance 476 (II)

22. Ecology Labs, Inc., will pay a dividend of $3 per share in the next 12 months(D1). The required rate of return (Ke) is 10 percent and the constant growth rate is 5 percent. a. Compute Pn. (In the remaining questions for problem 22 all variables remain the same except the one specifically changed. Each question is independent of the others.) b. Assume Ke, the required rate of return, goes up to 12 percent; what will be the new value of Pn? c. Assume the growth rate (g) goes up to 7 percent; what will be the new value of Pn? d. Assume D1 is $3.50; what will be the new value of Pn?

Subject:

Business

Topic:

Finance

Posting ID:

18971

OTA ID:

101733

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Price of bonds for different maturity dates

4. The Hartford Telephone Company has a $1,000 par value bond outstanding that pays 11 percent annual interest. The current yield to maturity on such bonds in the market is 14 percent. Compute the price of the bonds for these maturity dates: a. 30 years. b. 15 years. c. 1 year. Then graph the relationship in a manner similar to the figure 10-2. Also explain why the pattern of price change takes place. (Please see attached)

Subject:

Business

Topic:

Finance

Posting ID:

18972

OTA ID:

103477

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Managerial Finance 476 (II)

17. The preferred stock of Denver Savings and Loan pays an annual dividend of $5.60. It has a required rate of return of 8 percent. Compute the price of the preferred stock.

Subject:

Business

Topic:

Finance

Posting ID:

18973

OTA ID:

101733

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