Unformatted text preview: 10percent. 4. The expected dividend next year is $1.30 and dividends are expected to grow at 5% forever. If the discount rate is 10%, what is the value of this promised dividend stream? 5. If you can afford a $400 monthly car payment, how much car can you afford if interest rates are 7% on 36month loans? 6. A definedbenefit retirement plan offers to pay $20,000 per year for 40 years and increase the annual payment by 3percent each year. What is the present value at retirement if the discount rate is 10percent? 7. You are purchasing a home and applying for a $500,000 mortgage. The bank quotes you a rate of 7% APR for a 30year fixed rate loan. What is your monthly payment? • Note: when no compounding interval is stated, it is generally equal to the payment interval – in this case monthly....
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 Spring '10
 Xiao
 Finance, Debt, Interest Rate, Mathematical finance, Professor H. Wang

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