Exam1 Solutions_11Spring

Exam1 Solutions_11Spring - F301 Financial Management Spring...

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F301 Spring 2011 Page 1 of 3 F301 Financial Management Spring 2011 Exam 1 Solutions Written-Answer Problems (points as marked) 1. (12 points) The last dividend from Young Corp. was $2.00. In each of the next two years, the dividend is expected to increase by 12% per year. After that, the dividend will grow at 4% per year forever. Using a discount rate of 15%, calculate the current selling price of this stock (at Time Zero). 0 1 2 3 4 Last div 2.00 2.24 2.51 2.61 Next two 12% 23.72 Thereafter 4% 2.24 26.23 Rate 15% 1.95 19.83 21.78 2. (11 points) A 25-year home mortgage loan in the amount of $150,000 carries a quoted interest rate of 6% compounded monthly. Payments are made at the end of each month. How many You probably will find it helpful to sketch out a partial amortization table, but it is not required. Amount 150,000 Beg PMT Interest Princ End APR 6.0% 150,000 966.45 750.00 216.45 149,783.55 R 0.50% 149,783.55 966.45 748.92 217.53 149,566.01 Years 25 PMT 966.45 3. (12 points) When a corporation borrowed $750,000, it arranged to repay the loan with 4 years of quarterly payments (payments at the end of each quarter). The interest rate was quoted as 9.6% compounded annually. What will be the amount of each quarterly payment? Amount 750,000 Years 4 Rate/yr 9.60% Rate/qtr 2.3181% PMT 56,639.32 4. (11 points) Your company borrowed $30,000 from a bank, to be repaid with monthly payments for 3 years. Payments are made at the end of each month. The amount of each payment is $945.64. What is the EAR on this loan?
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This note was uploaded on 03/15/2012 for the course BUS-F 301 taught by Professor T during the Spring '12 term at IUPUI.

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Exam1 Solutions_11Spring - F301 Financial Management Spring...

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