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3. [1o points] a. (6pts) Describe and explain the behavior of thrifts, both insolvent and solvent, in the early 1980's Use the model of firm equity as a call option in your analysis b. (4pts) How did (an) outcome(s) of the S8L crisis contribute to the housing bubble of 2000-20057 4. (15 points] in what follows, assume fully amortizing, level payment mortgages, and that only scheduled payments are made (both in past and future), Ignore the effect of taxes and the value of the option to refinance again, later. Assume all fees and penalties will be financed A borrower has had a 15 year, 8%, s600,000 mortgage for 6 years. Closing fees on this mortgage were 1% of the loan amount (which were not financed), and the prepayment penalty is 3% of OLB The borrower is considering a refinance into a 10 year mortgage at 7%. She will take out an additional $45,000 in cash. The closing fees on the new mortgage are 4% of the loan amount, and there is no prepay penalty on the new mortgage. Also assume that the homeowner could borrow the extra 45,000 elsewhere at 10% for a fee of 4%, in the form of a 10 year monthly installment loan with no The borrower will sell the house and pay off any remaining mortgage and/or loan 7 years from now. What is the NPV of refinancing if the homeowner's opportunity cost is 7.5%, and should the borrower prepay penalty refinance