Question
Jack takes a fully amortizing mortgage for $80,000 at 7 percent interest for 20 years, monthly payments. What will be his monthly payment. 1-2, Michelle
- Jack takes a fully amortizing mortgage for $80,000 at 7 percent interest for 20 years, monthly payments. What will be his monthly payment.
1-2, Michelle qualifies to borrow $120,000 on a mortgage at 9 percent for 30 years, monthly payments.
- What is her monthly payment?
- How much interest does she pay in the first year of the mortgage?
- If she decides to repay the mortgage at the end of year, what is the outstanding balance at that time?
1-3, You want to purchase a house that has an asking price of $125,000. You can get a loan for 80 percent of the bank's appraised value at 9.5% percent for 30 years, monthly payments. The appraiser values the house at 95 percent of the asking price.
- What will be your monthly payment if you take the loan?
- What would be the balance of the mortgage after 5 years?
- Set up a 5-year amortization schedule showing total annual mortgage payments, total interest, and principal paid annually, and the balance at the end of each year. (Do not set up a monthly amortization schedule to answer this problem.)
1-4, Determine the monthly payment for the following mortgages of $90,000 each.
Mortgage Interest Rate(%) Maturity (in Months) Payment
A 10 360 ??
B 11 300 ??
C 9 300 ??
D 8 260 ??
1-5. How long would it take to pay off the following mortgages? (Never is a possible answer.)
Mortgage Payment ($) Interest Rate(%) Initial Loan ($) Maturity
A 400 10.0 45,000 ??
B 800 10.5 75,000 ??
C 600 11.0 62,000 ??
D 550 11.0 60,000 ??
- For a 30-year fixed-rate mortgage with balance of $100,000 and mortgage rate of 6.00%, please do solve the followings (0.25 point)
- Assuming the borrower will pay the mortgage based on the schedule for next 30 years,
- What is the Average Life of the mortgage (in years)?
- What is the PV of the mortgage if market mortgage rate goes up to 6.50%?
- What is the PV of the mortgage if market mortgage rate goes up to 5.50%?
- What is the effective duration according to the formular in slide 53?
- Assuming the borrower will pay the mortgage based on the schedule for next 30 years,
- Assuming the borrower will pay the mortgage based on the schedule for first five years and pay off the mortgage at the end of fifth year,
- What is the Average Life of the mortgage (in years)?
- What is the PV of the mortgage if market mortgage rate goes up to 6.50%?
- What is the PV of the mortgage if market mortgage rate goes up to 5.50%?
- What is the effective duration according to the formular in slide 53?
- (0.25 point, fixed-income concept) Implied Forward Rate question: If you have two options to investment your $10,000: First one is an one-year Certificate of Deposit (CD) with simple annual interest rate of 1%; The second one is a two-year Certificate of Deposit (CD) with simple annual interest rate of 2% for year 1 and year 2. There are two questions:
- What is the implied one-year forward one-year CD rate?
- Which investment between the two do you prefer? Why?
- (0.25 point, fixed-income concept) Day count/Compounding question: There are two one-year $10,000 investments, assuming both are default-free investments:
- Investment I pays coupon of 6.00%, paying semi-annually with day-count of 30/360;
- Investment II pays coupon of 6.10%, paying annually with day-count of Actual/365;
You can purchase each investment at price of 100, or pay $10,000 upfront.
Which investment do you prefer? Why?
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