Question 4 (4 points): You recently purchased a condo in Vancouver for $700,000 and made a down payment of 20% of the purchase price. The remaining amount (80% of purchase price) was borrowed from RBC with 25 years of amortization and 5 years fixed rate term. And your monthly mortgage payment is 2,600 and interest is compounded semi-annually. (a) At the time of f purchase, CIBC offered 2.80% semi-annual compounding interest. Did you get a better deal from RBC compared to CIBC? (b) Canada inflation rate jumps up to 7.7% in May 2022. What could be the impact on mortgage rates and the housing prices in Canada for 2022? Please explain. Question 5 (4 points): Western Bear Corporation (WB) issued a bond that matures in 9 years with face value $1,000. The bond pays 8% semi-annual coupon, and it is priced today at $1,060. (a) What would be the yield to maturity WB offered? Another company, Eastern Bear (EB), whose bonds are currently selling at $1,150 with 10 years left to maturity, pay semi-annual coupon, and have the same yield to maturity and face value as WB. (b) What is the coupon rate offered by EB? (c) Would you advise WB to use only debt financing for investment projects, why or why not? 31 Page Question 6 (4 points): IKE Inc. just paid its annual dividend of $1 per share and is planning to increase its annual dividend by 10% for the next 3 years. From 4th year onwards, the dividend will grow at an annual constant rate of 5% forever. (a) What is the value of IKE stock today if the required return is 9.5%? (b) What could be the impact on IKE stock price if the investors expect the dividend growth to be higher than 5%? Please explain. (c) What could be an example of an event or situation where demand for IKE stock will go down? Question 4 (4 points): You recently purchased a condo in Vancouver for $700,000 and made a down payment of 20% of the purchase price. The remaining amount (80% of purchase price) was borrowed from RBC with 25 years of amortization and 5 years fixed rate term. And your monthly mortgage payment is 2,600 and interest is compounded semi-annually. (a) At the time of f purchase, CIBC offered 2.80% semi-annual compounding interest. Did you get a better deal from RBC compared to CIBC? (b) Canada inflation rate jumps up to 7.7% in May 2022. What could be the impact on mortgage rates and the housing prices in Canada for 2022? Please explain. Question 5 (4 points): Western Bear Corporation (WB) issued a bond that matures in 9 years with face value $1,000. The bond pays 8% semi-annual coupon, and it is priced today at $1,060. (a) What would be the yield to maturity WB offered? Another company, Eastern Bear (EB), whose bonds are currently selling at $1,150 with 10 years left to maturity, pay semi-annual coupon, and have the same yield to maturity and face value as WB. (b) What is the coupon rate offered by EB? (c) Would you advise WB to use only debt financing for investment projects, why or why not? 31 Page Question 6 (4 points): IKE Inc. just paid its annual dividend of $1 per share and is planning to increase its annual dividend by 10% for the next 3 years. From 4th year onwards, the dividend will grow at an annual constant rate of 5% forever. (a) What is the value of IKE stock today if the required return is 9.5%? (b) What could be the impact on IKE stock price if the investors expect the dividend growth to be higher than 5%? Please explain. (c) What could be an example of an event or situation where demand for IKE stock will go down
