1. During the course of your education, you have borrowed $65,000 in student loans. You plan to make monthly payments in order to repay the debt. The interest rate is fixed at 6.8% APR (compounding is monthly).
a. If the loan is for 10 years, find the monthly payment.
b. Right after your 38th payment, you get a huge bonus and decide to pay off the loan. How much do you still owe?
c. Find the effective rate on the loan.
2. Starbucks has one debt issue outstanding. The debt matures on August 15, 2017, and has a 6.25% coupon. Coupons are paid semiannually. The bond is priced to yield 1.61% compound semiannually. The bond has a face value of $1000. SHOW YOUR WORK
a. Estimate the price of the bond on February 15, 2013, immediately after that coupon is paid.
b. You buy the bond on February 15, 2013 for your estimated price from part a. You sell the bond 1 year later for $1160. What was your return? Why is it different from the original yield to maturity? Assume you collect 2 coupon payments.
3. You have the following information for Starbucks: Current EPS is $1.79. The current dividend is $.68 per share. The return on equity is 24%. The current price is $49.22. Hint: Get the payout rate.
a. Use the dividend discount model (also known as the constant growth model) to estimate the return for Starbucks.
b. Assuming your answer to part a. is correct, estimate the present value of the growth opportunities (PVGO).