Practice final exam solutions

xlsx

School

Santa Clara University *

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Course

121

Subject

Finance

Date

Apr 3, 2024

Type

xlsx

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7

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Original wage $ 70,000 Nominal increase 4.00% Nominal wage $ 72,800 Inflation rate 2.50% Real rate 1.46% Real wage $ 71,024 Your salary after graduation was $70,000. After a year at work, you received a raise of 3.0% while during that year the inflation rate was 3.5%. What is your new salary in real terms? 𝑟𝑒𝑎𝑙 𝑟𝑎𝑡𝑒 =((1+𝑛𝑜𝑚𝑖𝑛𝑎𝑙 𝑟𝑎𝑡𝑒))/((1+𝑖𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒))−1
House price $ 2,000,000 Downpayment 20% Loan $ 1,600,000 PV $ (1,600,000) FV 0 PMT $7,455.32 Rate 0.317% 3.80% N 360 Max mortgage pmt 32.00% Monthly gross income required $23,297.87 Annual income required $279,574.41
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Your family friends are looking to buy a house. After learning that you study finance in college, they asked you to estimate what is the minimum annual household gross income required to qualify for a loan to purchase a house for $2,000,000. You know the following: -your friends have an excellent credit score and will qualify for a 3.80% 30-year mortgage; -bank requires 20% down payment and to qualify for a mortgage, the monthly payments could not exceed 32% of gross income; -your friends have sufficient funds for down payment;
PV -500 FV 1000 PMT 0 Rate 7.18% N 10 0.0718 Refer to in-class discussion of the W. Buffett bet. If each participant invested $250K instead of $330K, what would have been the expected YTM on the zero coupon bond? Enter your answer as decimals (e.g. 4.5% as 0.045)
Growth rate 2.50% Discount rate 5.50% CF(0) $ 155 CF(1) $ 159 PV $ 5,295.8 million Today is January 1, 2020. The XYZ company generated $155 million in free cash flows in 2019. The cash flows are expected to grow 2.5% per year indefinitely. If the opportunity cost for the company is 5.50%, what is the present value of all future cash flows today.
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Coupon 5.50% Maturity 20 years Face value 1,000 Price 102.55% PV $ (1,025.50) FV $ 1,000.00 PMT $ 27.50 $ 55.00 Rate 2.65% N 40 20 YTM 5.29% ABC Corporation issued a 10-year 5.85% coupon bond on February 15, 2018. Today is February 15, 2020 and the bond is trading at $1025.50 (face value $1,000). What is the yield to maturity of this bond? Enter your answer in decimals, e.g. 4.55% as 0.0455