Ann would like to buy a house. It costs $2,500,000. Her down payment will be $50,000. She will take out a mortgage for the remainder. It will be a 30 year, fully amortizing, FRM, with constant monthly payments and monthly compounding. The annual interest rate is 4.00%. She will pay $5,000 in closing costs at origination. She will also pay 1.75% of the balance in buy-down points at origination. Note: the home is bought and the loan is taken in month 0, the first payment is due in month

1. In the spreadsheet where it says cash inflow, outflow and net cash flow you should only take into account cash flow related to the mortgage.

2. Fill in the spreadsheet (sheet FA AMORTIZATION SCHEDULE) for Ann. (It is called an amortization schedule or amortization calendar.)

3. Compute Anns annualized IRR for the mortgage in the spreadsheet. (Use the net cash flow.) (3.a) What is the annualized IRR for the mortgage? (3.b) Is it higher or lower than the mortgage contract rate? (3.c) Why?

4. Plot Anns mortgage balance in one graph. Place the graph here.