2. Consider a constant payment mortgage of $100,000, maturity 30 years, interest rate 6%, monthly payments. What is the value of the mortgage (PV of future cash flow) after 4 years, if the market yield after 4 years is (a) 6% (b) 5% (c) 7% 3.

Suppose you are considering taking out a constant payment mortgage of $100,000, maturity 30 years, monthly payments. The bank offers a mortgage table with the following options: 1). No point, 6.875% mortgage interest rate; 2). 1 point, 6.675% mortgage interest rate; (3). 2 points, 6.5% mortgage interest rate. Which one of the above would you choose if (a) You will held the mortgage until maturity (b) You will prepay the mortgage after 5 years (c) You will prepay the mortgage after 10 years 4. Consider an adjustable rate mortgage of $100,000, no payment cap, no interest rate cap, 2% margin, annual adjustment, annual payments, 3 year maturity, initial index rate: 7%. Suppose we project that the second year index rate is 8.5%, the third year index rate is 10%. What is the APR (yield) of this ARM based on the forecasted interest rate? 5. Suppose you took out a mortgage with $100,000, 6% interest rate, 30 year amortizing and 10 year maturity balloon mortgage 5 years ago. Now suppose that you can refinance the existing mortgage loan with a new loan of 25-year amortizing and 5 year maturity, with 1 up front point and interest rate 5%. If the transactions cost is $5,000, do you want to refinance now? (Assuming no prepayment option value)