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3. Assuming that banks raise the funds available to lend to borrowers by using the money entrusted to them by depositors at the bank, compare
3. Assuming that banks raise the funds available to lend to borrowers by using the money entrusted to them by depositors at the bank, compare the following alternatives, from the bank's perspective: a) selling the mortgage cash flow stream to investors in the secondary market at the value computed in 2. above and investing the proceeds of the sale in 30yr Treasury bonds yielding 2.4%/yr b) keeping the mortgage cash flow stream and paying depositors 1.2%/yr interest on an amount that is 105% of the mortgage balance 3. Assuming that banks raise the funds available to lend to borrowers by using the money entrusted to them by depositors at the bank, compare the following alternatives, from the bank's perspective: a) selling the mortgage cash flow stream to investors in the secondary market at the value computed in 2. above and investing the proceeds of the sale in 30yr Treasury bonds yielding 2.4%/yr b) keeping the mortgage cash flow stream and paying depositors 1.2%/yr interest on an amount that is 105% of the mortgage balance
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