Real Estate
Bonds
Mortgages & Loans
TIME VALUE OF MONEY
100
You have seen an apartment which can be rented by €25,000 per year, and you think it could be a good investment. Assuming an average annual increase for leases of 0.5%, and a target compound annual return of 4%, which of the following prices matches more approximately the maximun price to be paid (use the perpetuity formula):
A. €500,000
B. €624,755
C. €714,285
C. € 714,285
100
A corporate bond issued by Tesla has annual coupons of 10%, a face value of $ 1,000, and matures in 5 years at the face value. Calculate the price of the bond (in $) for a yield to maturity of the bond of 7%.
A. $ 1,700
B. $ 1,000
C. $ 886
D. $ 990
E. $ 1,500
F. $ 1,123
F. $ 1,123
100
In the amortization of a mortgage loan with equal payments, the fraction of each payment devoted to interest steadily decreases over time and the fraction devoted to reducing the loan balance increases steadily.
True/False
TRUE
100
Assume an investment assessment gives a positive NPV using a target return or discount rate of 5%. If we decided to increase the targe return (discount rate), the NPV of this project will experience a reduction True/False
TRUE
200
You have seen an apartment which can be rented by €25,000 per year, and you think it could be a good investment. Assuming no increse in the annual leases and a target compound annual return of 4%, which of the following prices matches more approximately the maximun price to be paid (use the annuity formula for a lifespan of 200 years):
A. €500,000
B. € 624,755
C. €714,285
B. 624,755
200
In June 2016 your friend Helen bought a zero-coupon bond at par value, maturity in 10 years (June 2026) and redemption value of 268%. Today (June 2021) YTM of bonds with the same rating are:
7% maturitiy 10 years; 5% maturity 5 years; 3% maturity 3 years
Your friend wants to sell you her bond at 200% and you are interested in investing in bonds. Estimate what should be the market price for this bond according to YTM offered by similar bonds
A. about 210% of face value
B. about 191% of face value
C. about 231% of face value
A. about 210% or 2,100 €
300
You have seen an apartment which can be rented by €25,000 per year, and you think it could be a good investment. Assuming an increse in the annual leases of 0.5% and a target compound annual return of 4%, which of the following prices matches more approximately the maximun price to be paid (use the annuity formula for a lifespan of 200 years):
A. €500,000
B. € 624,755
C. €714,285
C. €714,285 (the exact result is 713,526)
300
Five years ago, Almaden Minerals LTD issued a 15-year, 6% annual coupon bond, with redemption value at par. The face value of the bond is $1,000. At that time, the bond had a yield to maturity of 6%.
You have to sell this bond at the market price now (five years after issuance). Assuming you have received the coupons from years 1 to 5 (therefore five Cash Flows) and that you also receive the market price of the bond today which is 90% of its face value, answer:
A. What has been the compound annual return you have obtained in this investment?
B. What is the YTM for the new buyer of the bond?
A. Your compound annual return is 4.2%
B. Buyer's compound annual return is 7.5%
400
You want to buy an apartment from a bank portfolio. The bank provides you with several possibilities. Which option would you choose if the annual interest rate is 8%? (we are assuming the r you receive in an alternative investment with the same risk is the same that the one you pay for a Mortgage)
A. a one-time down payment of €180,000 today (at the time of purchase)
B. a down payment of €50,000 today and 20 annual payments of e14,000, starting in one year.
C. a down payment of €100,000 today and €160,000 in 10 years.
D. a payment of €260,000 in 5 years
C. a down payment of €100,000 today and €160,000 in 10 years.
400
Estimate the monthly payment of a 10 years loan of €100,000 using an Annual Percentage Rate (APR) of 2.4 %. Assume monthly payments are constant during the term of the loan
Hint: annuity formula
A. 833.33 €
B. 938.16 €
C. 200.68 €
D. 2400.00€
B. 938,16
-----------------
APR 2.4% therefore monthly rate 0.2%
10 years are 120 months
PV 100,000
(1+0.2%)^-120 = 0.79
(1-[(1+0.2%)^-120]) = 0,21
CF .(1-[(1+0,20%)^-120]) = 100.000 . 0,20%
CF .(1-[(1+0,20%)^-120]) = 200
CF = 938.16
The monthly payment is 938.16€
400
Your corporate finance professor wishes to save €500,000 over the next 20 years to supplement her retirement payments. What uniform annual amount should she deposit, at the end of each year, to meet her goal, in a mutual fund with an expected annual compound return of 8%?
A. 25,000
B. 10,926
C. 16,500
B. 10,926
