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Michael Lee, the CEO of Lee Banking Corp., has just issued a mortgage with 8% contract interest rate (or MEY). Michael recognizes the relationship between
Michael Lee, the CEO of Lee Banking Corp., has just issued a mortgage with 8% contract interest rate (or MEY). Michael recognizes the relationship between bond-equivalent yields (BEY) and mortgage-equivalent yields (MEY). This relationship exists because mortgage cash flows can be packaged into bonds and then can be sold in the capital markets. How high can the yields be in the bond market (BEY) such that she can still sell this mortgage at par value in the bond market? (a) 7.10% (b) 8.13% (c) 8.30% (d) 7.23%
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