Please answer these questions:

1. Suppose Erica Watanabe takes out a fixed rate interest-only mortgage. Which of the following situations will make her realize that this is a bad financing decision on this kind of loan?

Rising interest rates after purchasing the home

Falling interest rate after purchasing the home

Rising home values after purchasing the home

Falling home values after purchasing the home

None of the above

2.Which of the following mortgage loans will have a larger monthly interest payment prior to the maturity of the shorter-term loan? Assume a 100-basis point spread between the two loans.

30-year mortgage

15-year mortgage

Total interest payment would be the same

Insufficient information

3. You are considering a 5%, 15-year mortgage with zero points. Noting that mortgage payments are made monthly, calculate your payment and effective annual rate. The loan is for $300,000. PLEASE WORK THIS PROBLEM CAREFULLY.

PMT = $2,372.38; Effective annual rate = 5.1162%

PMT = $2,294.98; Effective annual rate = 5.13%

PMT = $2,372.38; Effective annual rate = 4.99%

PMT = $1,610.46; Effective annual rate = 0.41667%

None of the above

4. You are considering a 4.5%, 15-year mortgage with 2.5 points. Noting that mortgage payments are made monthly, calculate your payment and effective annual rate. The loan is for $300,000. PLEASE WORK THIS PROBLEM CAREFULLY.

		PMT = $2,372.38; Effective annual rate = 5.1162%
		PMT = $2,294.98; Effective annual rate = 5.13%
		PMT = $2,372.38; Effective annual rate = 0.40675%
		PMT = $2,294.98; Effective annual rate = 4.99%
		None of the above