Question
A borrower takes out a 30-year price level adjusted mortgage loan for $200,000 with monthly payments. The initial interest rate is 4% with 4 points.
A borrower takes out a 30-year price level adjusted mortgage loan for $200,000 with monthly payments. The initial interest rate is 4% with 4 points. Assuming that inflation is expected to increase at the rate of 3% for the next 5 years, and a fully amortizing loan is made.
a) What is the monthly payment in year 2?
b) What is the expected effective yield to the lender if the loan is repaid in 2 years?
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An Introduction to Investment Banks, Hedge Funds, and Private Equity
Authors: David P. Stowell
1st edition
978-0123745033, 0123745039, 978-9380931074
