1. Ann wants to buy an office building which costs $1,000,000. She obtains a 30 year fully amortizing fixed rate mortgage with 80% LTV, an
1. Ann wants to buy an office building which costs $1,000,000. She obtains a 30 year fully amortizing fixed rate mortgage with 80% LTV, an annual interest rate of 4%, with monthly compounding and monthly payments.
The mortgage has a 2% prepayment penalty if the borrower prepays in the first 5 years. Suppose Ann makes the required monthly payment for 3 years and prepays after her final monthly payment at the end of 3 years. What is the annualized IRR on Anns mortgage?
| A. | 4.00% | |
| B. | 0.38% | |
| C. | 5.73% | |
| D. | 4.60% |
2. Ann got a 30 year Fully Amortizing FRM for $1,000,000 at an annual interest rate of 5.5% compounded monthly, with monthly payments.
After 5 years of payments, Ann can refinance the balance into a 25 year Fully Amortizing FRM at an annual interest rate of 4.75% compounded monthly, with monthly payments. Refinancing will cost Ann 1 point and $1,500 in closing costs. If Ann refinances into this loan and makes payments for 25 years, what will be her annualized IRR from refinancing?
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Authors: Greg Johnson
1st Edition
1574440691, 978-1574440690
