1. A venture has raised $4,000 of debt and $6,000 of equity to finance its firm. Its cost of borrowing is 6%, its tax rate is 40%, and its cost of equity capital is 8%. What is the venture's weighted average cost of capital? a. 8.0% b. 7.2% c. 7.0% d. 6.2% e. 6.0%
2. Given the following information on a 15-year fixed-payment fully-amortizing loan, determine the remaining balance that the borrower has at the end of six years. Initial loan amount: $160,369 and Interest Rate: 8%. Show all work.
3. Why do we need to make a convexity adjustment to estimate a bond’s percentage price change with respect to a given change in interest rates?