Answer:
the size of the mortgage with these terms is $149,138.24
Explanation:
The computation of the size of the mortgage is shown below:
Present value of annuity is
= Monthly payment × {[1 - (1 + rate of interest)^-number of months] ÷ rate of interest}
= $1,200 × {[1 - (1 + 0.0075)^-360] ÷ 0.0075}
= $1,200 × 124.2819
= $149,138.24
The 360 is come from
= 30 years × 12 months
= 360 months
hence, the size of the mortgage with these terms is $149,138.24
Answer:
c. the estimated sample regression function explains a greater percentage of the explained variation in y
Explanation:
The above is the reason showing the direct correlation between the sample regression and the R Square value.
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Answer:
a. Suppose GP issues $ 100$100 million of new stock to buy back the debt. What is the expected return of the stock after this transaction?
b. Suppose instead GP issues $ 50.00$50.00 million of new debt to repurchase stock. i. If the risk of the debt does not change, what is the expected return of the stock after this transaction?
ii. If the risk of the debt increases, would the expected return of the stock be higher or lower than when debt is issued to repurchase stock in part (i)?
- If the risk of the debt increases, then the cost of the debt will increase. Therefore, the company will need to spend more money paying the interests related to the new debt which would decrease the ROE compared to the 18% of (i). Since we do not know the new cost of the debt, we cannot know exactly by how much it will affect the ROE, but I assume it will still be higher than the previous ROE.
Explanation:
common stock $200 million
total debt $100 million
required rate of return 15%
cost of debt 6%
current profits = ($200 million x 15%) + ($100 x 6%) = $30 million + $6 million = $36 million
if equity increases to $300 million, ROI = 36/300 = 12
if instead new debt is issued at 6%:
equity 150 million, debt 150 million
cost of debt = 150 million x 6% = $9 million
remaining profits = $36 - $9 = $27 million
ROI = 27/150 = 18%
