Question
1.A lender wants an EY of 4.00% and expects an average loan payoff in 7 years.However, a particular borrower wants to borrow $400,000 for 30
1.A lender wants an EY of 4.00% and expects an average loan payoff in 7 years.However, a particular borrower wants to borrow $400,000 for 30 years at 3.20%, compounded monthly.First, without charging a prepayment penalty, how many discount points must the lender charge to have an EY of 4%.Assume no other fees to close the loan other than discount points.Second, without charging discount points, how much of a prepayment penalty (in terms of dollars) will the lender need to charge to have an EY of 4%.
3.In class, we discussed how longer-term loans are inferior to shorter-term loans.Develop an example and explain the concept.
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