The market risk premium is 10%, the risk-free rate is 1%, the value premium is 3%, and the small firm premium is 4%. A stock has
1 answer:
Answer:
CAPM = 18%
FF3 = 20%
Explanation:
risk free 0,03
premium market= (market rate - risk free) = 0,1
beta(non diversifiable risk) 1,5
Ke 0,18000
Fama-French Model:
We add another factors to the CAMP rate:
one for the size and one for the value of the company
CAMP + 0.5 x 0.04 + 0
As the value beta is zero then, that factor will be zero.
FF3 = 0.18 + 0.02 + 0 = 0.20
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Points are an upfront charge by the lender that is part of the price of a mortgage. Points are expressed as a percent of the loan amount, with 2 points being 2%. On a $400,000 loan,
solutions
Loan Amount $400,000
Loan Term (in months) 360 months
mortgage I mortgage II
Interest Rate 6.000% 5.750%
Points 0.00% 2.00%
Loan Payment Amount $2,398.20 $2,334.29
Costs Over 30 — Year Period
Points Paid in Cash
$0 $8,000
Monthly Costs -
Principal and Interest $863,348 $840,340
Lost Interest
On Points $0 $0
On Monthly Costs $0 $0
Total Costs $863,348 $848,340
Reduction in Loan Balance $400,000 $400,000
Total Cost Offsets $400,000 $400,000
Cost Net of Offsets $463,348 $448,340
Conclusions - Based on a 30 Year Holding Period
Over the next 30 years the High Interest / Low Points Loan Will Save You: $15,008
In Months, the Break-even Point Occurs in 1 months
In Years, the Break-even Point Occurs in 0.0833 years