Mortgage Payments & Annual Interest Rate Excel Sheet

1.Suppose your monthly mortgage payment is $2000; the stated annual interest rate is 4%; and you have 120 monthly payments remaining on your mortgage. Excel welcome!

  • What is the PV of the remaining mortgage payments?
  • You can skip the next five mortgage payments. These skipped payments do not need to be repaid. What is the PV of your mortgage payments now?
  • Now suppose that the five skipped mortgage payments do need to be repaid (as a lump sum) with interest at the conclusion of your loan. What is the PV of this stream of cash flows?

2. You are interested in valuing Delta. The company just reported EBIT of $6.618 billion. The company’s corporate tax rate is 20% and the depreciation expense was $2.581 billion. Capex was $4.56 billion. From the balance sheet, you note the following about working capital:

all figures in billions 12/31/2019 12/31/2018
Receivables $2.854 $2.314
Inventory $1.251 $1.055
Payables $3.266 $2.976

Delta has 24.07 billion in debt outstanding and 637.83 million shares outstanding. In light of Covid-19, Delta executives are forecasting a 1.5% growth free cash flow in perpetuity. Assuming a discount rate of 8%, what is the estimated share price for Delta?

3. A recent headline from MarketWatch stated that “Microsoft’s stock is getting increasing overvalued.” The stock is now trading at a price of $186.64. You wish to examine the Microsoft’s valuation using the dividend discount model.

Microsoft just paid a dividend of $2.04. Analysts expect growth over the next five years of 14.60%. Thereafter, the dividend will grow at a rate of 5% in perpetuity. Assuming a discount rate of 10%, estimate the price of Microsoft’s stock.

4. Suppose a bond has 20 years to maturity; a $1,000 face value; a coupon of 5%; and a yield to maturity of 6%. The coupon is paid semi-annually.

  • What is the price of this bond?
  • If the yield to maturity suddenly falls to 4%, what is the new price of the bond?
  • Short response: On March 15th, the Federal Reserve cut rates to 0%. All else equal, what impact should this have on bond prices? Will long-term or short-term bonds be more impacted? Why?

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