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please answer well and for the part 2 questions please show work in any format you want Part I .Multiple choice: For each of the
please answer well and for the part 2 questions please show work in any format you want
Part I .Multiple choice: For each of the questions below, select one and only one answer. PUT THE LETTER IN THE BOX 1. If a 20 year zero coupon bond is priced at $200, has a face value of $1000, and is compounded annually, then what is the bond priced to yield? (A) 3.22% (B) 8.38% (C) 10.71% (D) 12.26% 2. If you save $500 at a 4% interest rate compounded quarterly, what is the future value in 15 years? (A) $504.00 (B) $684.23 (C) $783.74 (D) $908.35 3. What is the Effective Annual Rate for a nominal rate of 5% compounded monthly? (A) 5.02% (B) 5.12% (C) 5.50% (D) 6.22% 4. Suppose Ann borrows $120,000 through a 30 year fixed rate mortgage at 4% compounded monthly, and her loan to value ratio is 80%. What was the price of the house that Ann bought? (A) $100,250 (B) $120,000 (C) $140,000 (D) $150,000 5. If Alice obtains a $200,000 mortgage and is required to pay 1.5 points of origination costs and $2,000 of closing costs how much in total will Alice pay in fees when she takes out this loan? (A) $ 4,250 (B) $ 5,000 (C) $ 6,650 (D) $ 7,250 6. Mark has a 30 year fixed rate mortgage at 4% APR with monthly payments. After Mark's 27 th payment his balance is $72,000. How many dollars is Mark paying in interest in month 28? (A) $ 163.26 (B) $ 240.00 (C) $ 250.29 (D) $ 276.78 7. If Kim takes out a 30 year mortgage with a 5 year IO (Interest Only) period, when she makes her regular monthly payments for the first 5 years, the principal balance of the loan... (A) increases (B) decreases (C) increases, then decreases (D) stays the same . Part II. Show all work!! Final answers go in the boxes! Yields to 2 decimal places (ex 4.95%) Values to 2 decimal places (ex. $765.45) (1) Net Present Value Acme is deciding to invest in creating a new product. Their analysts find that developing this product will cost $ 100,000 immediately, and $ 80,000 in one year. The analysts forecast that the product will earn $ 200,000 in revenue in 2 years and $ 100,000 in 3 years. After 3 years, the product will become obsolete. Assume interest is compounded once per year. The following 4 questions will use this information. a) What is the NPV? b) What is the Internal Rate of Return (IRR) on this investment? c) Suppose ACME's annual required rate of return is recommend they invest in this product? 10 , what is their NPV? Do you d) Suppose ACME's annual required rate of return is 50 , what is their NPV? Do you recommend they invest in this product? (2) Fixed Rate Mortgages - Basics Ann found an apartment that costs $500,000. She has saved $100,000 for a down payment and will get a mortgage for $400,000. It will be a fully amortizing 30 year fixed rate mortgage at 4% with monthly payments. The following 4 questions will use this information. a) What is Ann's Loan to Value ratio when she gets the loan? b) What will Ann's monthly mortgage payment be? c) What will be the balance on Ann's mortgage after the 7 th monthly payment? d) What is the total sum of all cash flows that Ann will pay the bank over the entire life of the loanStep by Step Solution
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