Practice_Midterm1

Practice_Midterm1 - 1) After having graduated and having a...

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1) After having graduated and having a very successful career as an Investment Banker, you decided to go back to Santa Barbara and enjoy life a little more. So, you decided to buy a $5,000,000 house in Montecito. You decided to take a loan to make the purchase of the house. In doing research for the loan you ended up with two final alternatives: 20 year loan, with an APR rate of 6%, with payments every six months. 20 year loan, with an APR rate of 5%, with payments every month. a) Which of the two alternatives you should choose? How much are you paying regularly in that loan? b) After 10 years you plan to pay it all and liquidate the loan. How much will you pay then?
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2) Your last job assignment before moving to Santa Barbara was to analyze the stock of Cho, Lang and Associates. The firm just paid the last dividend. The Earnings for the last year were $3.00 per share and the firm has a policy to re-invest 2/3 of their earnings and only pay the remainder as dividends. The Earnings retained in the company are able to generate a 9% rate of return, according to your studies. Also, you know that the appropriate discount rate for the business of Cho, Lang and
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Practice_Midterm1 - 1) After having graduated and having a...

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