A broker arranges an interest only mortgage with a face value of $500,000 between a borrower and a bank. The mortgage has a quoted rate of 5% per annum compounded semi-annually with monthly payments rounded to the next higher dollar and for a term of 20 years. Prior to advancing the funds to the borrower, a $5000 broker commission fee (a bonus) is deducted from the face value of the mortgage loan and paid to the broker.

Part 1:

Calculate the monthly payment.

Part 2:

Calculate the borrowers interest cost as effective annual rate.

Part 3:

Using the same facts above, instead of the borrower paying the broker the fee, the bank pays the fee. Calculate the yield to the bank as an effective annual rate.

Part 4:

Using the same facts above, suppose an investor offers to purchase the mortgage from the bank. If the investor requires a yield of 7% compounded annually, what is the maximum amount the investor should pay for this mortgage.