Question

1. You will receive $100 per year for 10 years. The discount rate is 10%. What is the present value of this stream?

2. Using the previous information, assume now the 100 will increase at a 5% per year from year 1. What is the new present value?

3. Now assume compute the present value for the same information using a perpetuity without and with growth. Compare the 4 present values. What would you rank those?

4. You look at apartment prices online. You find that a two bedroom apartment is being sold at $1,250,000. The discount rate is 8% annual and the rent growth rent for this kind of apartments if 5% a year. What is the monthly rent associated to this present value?

5. In the neighborhood ABC you find an apartment which monthly rent is $2,500 and it is increased at 4% per year. The sell price for this property is $700,000. What is the discount rate implicit in this problem?

6. You need a 20-year, fixed-rate mortgage to buy a new home for $500,000. Your mortgage bank will lend you the money at a 4.5 percent APR for this 240-month loan, with interest compounded monthly. What is the monthly payment if the bank finance you the 100% of the purchase price.

7. Using the previous exercise, suppose now, you can only afford monthly payments of $1,000, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment. What will be the amount of the balloon payment if you are to keep your monthly payments at $1,000?

8. You buy a two year zero coupon bond. The price is 98. It pays 100. You have a two year 10% coupon bond with face value 100. The spot rate for year 1 is 5%. What is the price of the 2 year coupon bond? 9. What is the yield to maturity for the two bonds from the previous exercise

Answer 1