1. You just got a substantial pay raise and decided to move the family into a bigger house. Thus, you are selling your current home, liquidating your mortgage, and using the remaining equity on your home as the down payment for the new house. Your salary before taxes will now be $50,000 per year, placing you in the 20% tax bracket. How much of a monthly principal and interest payment will you qualify for under traditional mortgage lending standards?
A) $833.33
B) $1,208.33
C) $1,458.33
D) $4,166.66
E) Impossible to tell without knowing the interest rate and size of the down payment.
2. Which of the following is NOT a procedure for valuing real options?
Discounted cash flow analysis
Black-Scholes model
Financial engineering
Decision tree analysis
Random walk analysis