6.You receive a credit card application from Shady Banks Savings an introductory rate of 1.7 percent per year, compounded monthly for the first six months, increasing thereafter to 15 percent compounded monthly. Assuming you transfer the $5,000 balance from your existing credit card and make no subsequent payments, how much interest will you owe at the end of the first year? 7.Consider a bond with a face value of $1,000. The coupon is paid semiannually and the market interest rate (YTM) is 12 percent. How much would you pay for the bond if a. the coupon rate is 8 percent and the remaining time to maturity is 20 years? b. the coupon rate is 10 percent and the remaining time to maturity is 15 years? 8.The next dividend payment by Hot Wings Incorporation will be $2.10 per share. The dividends are anticipated to maintain a 5 percent growth rate forever. If the stock currently sells for $48 per share, what is the required return? 9. You are planning to save for retirement over the next 30 years. To do this, you will invest $700 a month in a stock account and $300 a month in a bond account. The return of the stock account is expected to be 11 percent, and the bond account will pay 6 percent. When you retire, you will combine your money into an account with a 9 percent return. How much can you withdraw each month from your account assuming a 25-year withdrawal period? 10.A bond is sold at $923.14 (below its par value of $1,000). The bond has 15 years to maturity and investors require a 10-percent yield on the bond. What is the coupon rate for the bond if the coupon is paid semiannually? 11. Metallica Bearings, Inc. is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earning to fuel growth. The company will pay a $10 per share dividend in 10 years and will increase the dividend by 5% per thereafter. If the required return on this stock is 14%, what is the current share price? 12.Plato Company?s common stock is selling for $50. Last year?s dividend was $4.8 per share. Compute the cost of retained earnings (or internal equity) if both earnings and dividends are expected to grow at (a) zero percent and (b) a constant rate of 9 percent. 13. Muffin Megabucks is considering two different savings plans. The first plan would have her deposit $500 every six months, and she would receive interest at a 7 percent annual rate, compounded semiannually. Under the second plan she would deposit $1,000 every year with a rate of interest of 7.5 percent, compounded annually. The initial deposit with Plan 1 would be made six months from now and, with Plan 2, one year hence. a. What is the future value of the first plan at the end of 10 years? b. What is the future value of the second plan at the end of 10 years? c. Which plan should Muffin use, assuming that her only concern is with the value of her savings at the end of 10 years? d. Would your answer change if the rate of interest on the second plan were 7 percent? Attachments: Review-for-Fi....docx
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