Bus 379 Course Project Part 1

Task 1

Part 1

EAR= (1+Quated rate/m)^m− 1

National First

(1+.10/2)^2-1= 10.25%

Regions Best

(1+.1317/12)^12-1=13.99%

Part 2

After doing the calculations to calculate the EARs for National First and Regions Best Banks, I would recommend taking a loan with National First due to the lower EAR over a loan with Regions Best that has a higher EAR of 13.99. If I calculated monthly loan payments correctly for an $8,000,000.00 loan, the monthly payment for National First would be $170,962.11 and the monthly payment for Regions Best would be $186,104.53. These calculations are based on monthly payments of a 5 year loan.

Part 3

The formula I used to figure out a monthly payment on a 5 year loan of $6,950,000 at an interest rate of 8.6% is

$6,950,000 = C*(1−1/1.086^60)/.09

= $142,925.09 monthly payments for 5 yrs.

Task 2

Part 1

Boeing stock is at $100.00 at closing today with a dividend of 1.94.

D1/Po+g=

1.94/100+5%=

1.94%+5%= 6.94%

Part 2

Po=Do*(1+g)/(R-g)

Po=1.50*(1+.01)/(.0694-.01)

Po=1.50*1.01/.0594

Po=1.515/.0594

Po=25.51

Part 3

I think the preferred stock would have a higher price due to it is paid out to shareholders before common stock. Owners of preferred stock would pay more because they are guaranteed to get dividends before the common stock holders if there were dividends to be paid out.

Part 4

If the dividends at the end of the year increase the price of stock will also increase. As the investor changes their required rate of return, the maximum they are willing to pay for a security will also change.

Task 3

Part 1

Current price of bond = $1062.00

Term = 20

Annual Rate = 7.5%

Par value of bond = 1000

Annual interest = 75

Semi-annual interest = 37.50

1062=37.50*1-(1+YTM/2)^40/YTM/2+1000/1+(YTM/2)^40

YTM = 6.92

1000 = C(1000)*(1-(1.06921)^-20/6.92%+1000(1.0692)^20

1000 = C(1000)*10.66020643+262.3137151

C = 1000-262.3137151/10660.20643

C = 6.92%

Part 2...