1. Today is T=0.  You borrow $300,000 today at a rate of interest of 5%.  You agree to repay the loan in 6 equal, annual installments.  The first payment is to be made at T=1.   What is the amount of the principal reduction associated with the third payment?

 

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2. Today is T=0.  A company paid a dividend of $4.00 yesterday.  Dividends are expected to grow at a rate of 8% for three years, 7% for one year and then at a rate of 6%, forever.  The required return is 12% and is never expected to change.  Estimate the equilibrium price of a share of stock at T=0.  PROVE YOUR ANSWER

 

 

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3. Today is T=0.  A bond has an 8% coupon rate, annual payments, and 10 years until maturity.  If the bond sells for $1,147²⁰¹⁷ what is your capital gain yield between T=6 and T=7.

 

 

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