Fe101 Final Review
Autor: Joshua • November 29, 2017 • 1,973 Words (8 Pages) • 596 Views
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B) After making your first two years of payments, what is your payoff balance? (2 points)
N=336 I/Yr=0.32737 PMT=$1,183.25 FV=0
PV=$240,906.65
Over the first two years, how much interest did you pay on your loan? (2 points)
2 pts: Total payments: $1,183.25 x24 = $28,398. Principal paid = $250,000 - $240,906.65 = $9,093.35 Interest paid = $28,398 - $9,093.35 = $19,304.65
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- (6 points)
Rating:
US Treasury
A
BBB
BB
Yield
3.00%
4.00%
6.00%
10.00%
You begin your job as a credit analyst and decide to make your first investment. You invest in the 10 year bonds of Questrom Corporation, a BB-rated company. If your bonds pay coupons twice a year with a coupon rate of 9.0%, what is the price of one bond if the face value is $100? (2 points)
N=20 I/Yr = 5.0% PMT= 4.5 FV=100
PV=-93.77
Immediately after you purchase these bonds, Standard & Poor’s decides to upgrade Questrom Corp. to a BBB-rating!
What is the new price of your bonds? (2 points)
N=20 I/Yr = 3.0% PMT= 4.5 FV=100
PV=-122.32
What was the percentage change in your bonds? (2 points)
(122.32/93.77) – 1 = +30.4%
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- (6 points) Coca-Cola will pay an annual dividend of $0.75 one year from now. Analysts expect this dividend to grow at 8.75% per year for three years. Thereafter, growth will slow down to 3.0% per year and remain there for the foreseeable future.
What dividend will the company pay in each of the first 5 years? (2 points)
0
1
2
3
4
5
Growth
0.0875
0.0875
0.0875
0.03
Dividend
$0.750
$0.816
$0.887
$0.965
$0.994
According to the dividend discount model, what is the value of a share of Coca-Cola stock today if the firm’s cost of equity capital is 9.0%? (4 points)
0
1
2
3
4
5
Growth
0.0875
0.0875
0.0875
0.03
Dividend
$0.750
$0.816
$0.887
$0.965
$0.994
(0.965/(.09-.03)
$16.08
$0.887
$14.47
$0.750
$0.816
$16.96
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