Answers/loan Amortization Schedule Personal Finance Problem Joan Messineo Borrowed 20 000 9 Annual q51926905

XYZ company presently pays a dividend of $ 1.
50 per share on its common

stock. The company expects to increase the dividend at a 20% annual rate the
first four years and at the rate of 13% at the next four years then the growth on
the dividend at a 7% thereafter. This phased growth patterns is in keeping with
the expected life cycle of earnings. You are required a 16% return to invest in
this stock. What value should you place on a share of this Stock?
The value is computed as follows:

= Dividend in year 1 / (1 + required rate of return)1 + Dividend in year 2 / (1 + required rate of
return)2 + Dividend in year 3 / (1 + required rate of return)3 + Dividend in year 4 / (1 + required rate of
return)8 + 1 / (1 + required rate of return)8 [ ( Dividend in year 8 (1 + growth rate) / ( required rate of
return - growth rate) ]
= ($ 1.50 x 1.20) / 1.161 + ($ 1.50 x 1.202) / 1.162 + ($ 1.50 x 1.203) / 1.163 + ($ 1.50 x 1.204) / 1.164 +
($ 1.50 x 1.204 x 1.13) / 1.165 + ($ 1.50 x 1.204 x 1.132) / 1.166 + ($ 1.50 x 1.204 x 1.133) / 1.167 + ($
1.50 x 1.204 x 1.134 ) / 1.168 + 1 / 1.168 x [ ($ 1.50 x 1.204 x 1.134 x 1.07) / (0.16 - 0.07)
= $ 1.80 / 1.16 + $ 2.16 / 1.162 + $ 2.592 / 1.163 + $ 3.1104 / 1.164 + $ 3.514752 / 1.165 + $
3.97166976 / 1.166 + $ 4.487986829 / 1.167 + $ 5.071425117 / 1.168 + 1 / 1.168 x [ $ 5.426424875 /
0.09 ]
= $ 1.80 / 1.16 + $ 2.16 / 1.162 + $ 2.592 / 1.163 + $ 3.1104 / 1.164 + $ 3.514752 / 1.165 + $
3.97166976 / 1.166 + $ 4.487986829 / 1.167 + $ 5.071425117 / 1.168 + $ 60.29360972 / 1.168
= $ 1.80 / 1.16 + $ 2.16 / 1.162 + $ 2.592 / 1.163 + $ 3.1104 / 1.164 + $ 3.514752 / 1.165 + $
3.97166976 / 1.166 + $ 4.487986829 / 1.167 + $ 65.36503484 / 1.168
= $ 31.36
Note: 1+20% = 1.20
Joan Messineo borrowed $15,000 at a 14% annual rate of interest to be repaid over 3 years. The
loan is amortized into three equal, annual, end-of-year payments.
(i) Calculate the annual, end-of-year loan payment.
(ii) Prepare a loan amortization schedule showing the interest and principal breakdown of each of
the three loan payments.
(iii) Explain why the interest portion of each payment declines with the passage of time.
Another same type of question link: https://www.chegg.com/homework-help/questions-and-

answers/loan-amortization-schedule-personal-finance-problem-joan-messineo-borrowed-20-000-9-
annual-q51926905
Loan 15000
Interest 14.0%
Time 3 years
Annuity Factor =(1-((1+r)^-n))/r
=(1-((1+14%)^-
3))/14%
2.3216
Answer to i)
Annual Payment =15000/2.3216
Annual Payment
= $6,460.97
Answer to ii)
Loan
Amortization
Schedule
Principa
l Loan
Payment Outstandin
Interest (B = A*14% Monthly Payment (D = C- g (E = A +
Month Loan Beginning (A) %) (C) B) B - C)
1 15000.00 2100.00 6460.97 4360.97 10639.03
2 10639.03 1489.46 6460.97 4971.51 5667.52
3 5667.52 793.45 6460.97 5667.52 0.00
You have just the following information about ABC Ltd, which pays tax @
35% p.a
(i) 7000 Bonds with 8% coupon, face value of $1000 & maturity period of
15 years, payments to be made semi-annually, currently sold at 90% of
par value.
(ii) 300,000 common shares outstanding, currently selling at $ 60 per share
having beta of 1.10.
(iii) 20,000 outstanding shares of $6 preferred shares, selling at $95 per
share.
Required: Work out overall cost of capital assuming 7% market risk premium
and 5% risk free rate of return.
cost of equity=risk free rate+beta*market risk premium=5%+1.10*7%=12.700%
pre tax cost of debt=ytm=RATE(15*2,8%*1000/2,-90%*1000,1000)*2=9.246%
cost of preferred stock=6/95=6.316%
overall cost of capital=(7000*1000*90%*9.246%*(1-35%)+20000*95*6.316%+300000*60*12.70%)/

(7000*1000*90%+20000*95+300000*60)=10.628%
Consider a coupon bond that has a face value of $1000, has a yield of 16%,
pays a semi annual coupon of 70, and matures in one year. Assuming that the
bond will pay the face value amount that the cost coupon payment on the
maturity date. Calculate the price of the bond.
Mr. Tom has $ 50,000/- that he can deposit in any of the three saving accounts
for a period of three years. Bank A compounds interest on annual basis, Bank B
compounds interest on semi-annually basis and bank C compounds interest on
quarterly basis. All these banks have a stated rate of 5% per annum.
Required:
(1) Compute Effective Annual Rate (EAR), Mr. Tom can earn from each bank.
(2) What amount would Mr. Tom have at the end of 3rd year, leaving all interest
paid on deposit (no withdrawals), from each bank?

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XYZ company presently pays a dividend of $ 1.

50 per share on its common

The value is computed as follows:

Note: 1+20% = 1.20

Another same type of question link: https://www.chegg.com/homework-help/questions-and-

Annuity Factor =(1-((1+r)^-n))/r

Annual Payment =15000/2.3216

1 15000.00 2100.00 6460.97 4360.97 10639.03

2 10639.03 1489.46 6460.97 4971.51 5667.52

3 5667.52 793.45 6460.97 5667.52 0.00

cost of equity=risk free rate+betamarket risk premium=5%+1.107%=12.700%

pre tax cost of debt=ytm=RATE(152,8%1000/2,-90%1000,1000)2=9.246%

cost of preferred stock=6/95=6.316%

overall cost of capital=(7000100090%9.246%(1-35%)+20000956.316%+3000006012.70%)/

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