A. We receive a $400,000 mortgage from the Causing, bank for 100 years. A VP at

Question

A. We receive a $400,000 mortgage from the Causing, bank for 100 years. A VP at the bank, Robert Littlejohn. tells us to fully amortize the mortgage we need to pay $4,440.820078 monthly. First, we would like to know how much the monthly and yearly mortgage rate the bank charges us. Second, we should find both the nominal and effective annual mortgage rate. Third, we are interested in paying off the total amount in year 30(month360). How much should we give the bank besides the monthly mortgage payment? Fourth. we may have $25,000 to give to the bank additionally to the regular monthly payment in 15 years. How much loan will remain at that point? Fifth, how many more months should we keep paying to eliminate the loan?

Explanation / Answer

d)

Assume the current dividend paid is $10

Compute the price of the stock:

=D1/Ke-g

= 10.4/(15.8%-4%)

=10.4/11.8%

= $88

Determine the following:

Ke = Risk free rate + Beta*(Risk premium)

= 8% + 1.3*6

=8+7.8

=15.8%

D1 = 10+(10*4%)

=10.4

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