Amortizing Loan. Consider a 25-year amortizing loan. You borrow $5 million initially, and repay it in equal month-end payments (total 300 months).

a. If the interest rate is 3.5%. What is the monthly payment?

b. What is the Loan Balance after the 120th month payment?

c. What is the "Year-end interest due on balance" of the 120th month? d. What if interest rate increases to 5% after 36 months from the time you started borrowing, what would be the new monthly payments?

Interest Rate Risk. Consider two bonds, a 3-year bond paying an annual coupon of 4% and a 10-year bond also with an annual coupon of 4%. Both currently sell at face value. Now suppose interest rate raise to 10%.

a. What is the new price of the 3-year bonds?

b. What is the new price of the 10-year bonds?

c. Do you conclude that long-term or short-term bonds are more sensitive to a change in interest rates?

Preferred Stock. Preferred Products has issued preferred stock with an $4 annual dividend that will be paid in perpetuity.

a. If the discount rate is 5%, at what price should the preferred sell?

b. At what price should the stock sell 1 year from now?

c. What is the dividend yield, the capital gains yield, and the expected rate of return of the stock?

borrowing. What would be the new menthiy poy ments? Value, Now suppose incerest rate raise to 10%. a. What is the new price of the 3 -year bonds? b. What is the new priee of the 10 -year bondis? interost rates? dividend that will be paid in perpetuity. a. If the discount rato is 5%, wh what price should the preferred well? b. At what price should the stoek sell i yeas from now? e. What is the dividend yidd. the oupital guins yield, and the expected rave of return of the stock