Question
Bankers at New Savings are setting mortgage rates.They first determine the interest rate for 30-year FRM to be 4.5% without any discount point, which is
Bankers at New Savings are setting mortgage rates.They first determine the interest rate for 30-year FRM to be 4.5% without any discount point, which is at the average level in the region. They then consider two choices for the FRM with discount points as below:
Choice 1: 30-year FRM @ I = 3.50%, and 1 point.
Choice 2: 30-year FRM @ I = 3.50%, and 2 points.
- Calculate the effective yields of the threemortgages for year 1, 2, 5, 15, 30.
- Briefly graph the yield curves.
- Which of the two choices would you advise them to offer to the market and why?
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Financial Accounting
Authors: Robert Libby, Patricia Libby, Frank Hodge
10th edition
1259964949, 1259964947, 978-1259964947
