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5) You are refinancing your current mortgage with an outstanding loan balance of $280,000 today
5) You are refinancing your current mortgage with an outstanding loan balance of $280,000 today. The new loan has 3.9% APR interest rate (compounded monthly) and it requires you to make a monthly payment for the next 30 years. What is your monthly payment under this new loan? Please show your excel formula in your answer and explain step-by-step calculation to arrive to your answer.
6) Calculate the present value of a stock if this stock pays $1.2 dividend in the next four years and then $2.50 for year 5 to year 7, and in year 8 and thereafter it pays $4 constant dividend forever. The interest rate is 9%. Please provide excel formula and provide step-by-step explanations on your calculations.
7) You are thinking of buying a bond today. This bond is expected to pay $30 every year for 4 years and the bond will also pay a lump sum of $1000 at the end of year 4. If the nominal interest rate is 6% APR but compounded monthly, how much are you willing to pay for each share of this bond today? Please show your formula in your answer and explain step-by-step calculation to arrive to your final answer.
Expert Solution
5) We can calculate the monthly payment by using the following formula in excel:-
=pmt(rate,nper,-pv,fv)
Here,
Pmt = Monthly payment
Rate = 3.9%/12 = 0.325% (monthly)
Nper = 30*12 = 360 periods (monthly)
PV = $280,000
FV = $0
Substituting the values in formula:
= pmt(0.325%,360,-280000,0)
= $1,320.67
6) Present value of stock = $32.68
7) We can calculate the current value of bond by using the following formula in excel:-
=-pv(rate,nper,pmt,fv)
Here,
PV = Current value of bond
Rate = 6.17%
Nper = 4 periods
Pmt = $30
FV = $1,0000
Substituting the values in formula:
= -pv(6.17%,4,30,1000)
= $890.65
Working note:-
EAR = (1+rate/n)^n-1
= (1+6%/12)^12-1
= 1.0617 - 1
= 6.17%
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