This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: 1. The interest rate on a $10,000 loan is 8% APR compounded quarterly. Suppose the loan is to be repaid in three equal installments due 2, 4 and 8 years after the date of the loan. Calculate the size of each payment. 2. Growth v.s. no growth: a. Krueger Industrial Smoothing pays $2 in dividends every year, and dividends are expected to continue in perpetuity (i.e. dividends are constant). What will be the stock price of Krueger in 17 years if the required rate of return is 10%? b. Suppose that Newmans Postal Co has also paid $2 in dividends (D = $2), but its dividends are expected to increase by 5% each year in perpetuity. What is Newmans price going to be in 17 years based on this new assumption? How about 25 years? (The required rate of return is the same as for Krueger.) 3. J. Peterman Inc. issued a ten-year bond three years ago with a face value of $1,000. The bond makes semi-annual coupon payments, and its coupon rate is 8%. One year ago the yield to maturity on eight-year bonds with the same credit rating was 8%. The current yield to maturity on seven-on eight-year bonds with the same credit rating was 8%....
View Full Document