loi Chatman recently received her finance degree and has decided to enter the mortgage broker business. Rather than working for someone else, she will open her own shop. Her cousin Mike has approached her about a mortgage for a house he is building. The house will be completed in three months, and he will need the mortgage at that time. Mike wants a 25-year, fixed-rate mortgage in the amount of $500,000 with monthly payments. loi has agreed to lend Mike the money in three months at the current market rate of percent, Because Joi is just starting out, she does not have $500,000 available for the loan: so she approaches lan Turnbell, the president of IT Insurance Corporation, about purchasing the mortgage from her in three months. Ian has agreed to purchase the mortgage in three months, but he is unwilling to set a price on the mortgage Instead, be has agreed in writing to purchase the mortgage at the market rate in three months. There are Treasury Treasury bond contract is for $100,000 in face value of Treasury bonds. 1. What is the monthly mortgage payment on Mike's mortgage (Hint: Use time value of money you have learned to solve this problem0? 2. What is the most significant risk loi faces in this deal? 3. How can Ioi hedge this risk? Should Joe use a long hedge or short hedge? 4. Suppose that in the next three months the market rate of interest rises to 9 percent. a. How much will lan be willing to pay for the mortgage? b. What will happen to the value of Treasury bond futures contracts? Will the futures position Joe takes increase or decrease in value? 5. Suppose that in the next three months the market rate of interest falls to 7 percent. a. How much will lan be willing to pay for the mortgage? b. What will happen to the value of T-bond futures contracts? Will the futures position Joe takes increase or decrease in value? 6. What is the major risk loi faces in using Treasure bond futures contracts to hedge her interest rate risk? bond futures contracts available for delivery in three months. A