1. A bank has issued a nine-month, $8 million negotiable CD with a 2.8000 percent quoted annual interest rate.

1. Calculate the bond equivalent yield and the EAR on the CD.

2. How much will the negotiable CD holder receive at maturity?

3. Immediately after the CD is issued, the secondary market price on the $8 million CD changes to $8,011,270. Calculate the new secondary market quoted yield, the bond equivalent yield, and the EAR on the $8 million face value CD.

2. You plan to purchase a house for $7,200,000 using a 25-year mortgage obtained from your local bank. You will make a down payment of 30 percent of the purchase price. You will not pay off the mortgage early.

1. Your bank offers you the following two options for payment:

Option 1: Mortgage rate of 3 percent and 1 points.

Option 2: Mortgage rate of 3.1 percent and 2 points.

Which option should you choose?

2. Your bank offers you the following two options for payment:

Option 1: Mortgage rate of 2.75 percent and 3.5 point.

Option 2: Mortgage rate of 2.95 percent and 1 points.

Which option should you choose?