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3) Consider a $75,000 price-level adjusted mortgage (PLAM) with a 4% interest rate and a 30-year amortization schedule. Assume that the expected inflation rate is
3) Consider a $75,000 price-level adjusted mortgage (PLAM) with a 4% interest rate and a 30-year amortization schedule. Assume that the expected inflation rate is 6%, 4%,5% at the end of year 1, 2 and 3 respectively. a) What is the initial monthly payment on this mortgage? b) Calculate the new balance outstanding on the PLAM at the beginning of the second year and the payment required during year 2. c) Calculate the new balance outstanding on the PLAM at the beginning of the third year and the payment required during year 3. d) Calculate the effective cost of borrowing for a holding period of three years if the closing cost is $ 4000, 2 discount points and a prepayment penalty of 2%
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