1. Suppose a studio apartment costs $250,000. You put down 20% in cash, taking out the remaining with a 30-year mortgage from a local bank. The quoted annual interest rate is 12%
1) How much is your monthly loan payment and what is the EAR on the loan?
2) After 10 years, how much is the remaining balance of the loan principal ?
3) How much total interest will you pay over 30 years?
2. Suppose that XYZ Corporation has previously issued corporate bonds, preferred stock and common stock. Now, the firm has just received a change in its bond rating to AA from AAA. This means that a new bond issue by the firm will:
pay a higher coupon rate than firms with a AAA rating for the same type of bond issue
pay a lower coupon rate than firms with a AAA rating for the same type of bond issue.
the firm will not be able to issue any new bonds until its rating returns to AAA.
none of the above as bond ratings are no longer relevant.