***Please show calculator work, show the entries or steps you use***

#1. How many points must a lender charge for a 5 percent, 30-year note to achieve a yield of 6%? (Though the loan amount does not matter, assume a $100,000 loan for computations)

A. Assume the borrower holds the note for the entire term

B. Assume the borrower holds the note for 5-years How does the prepayment assumption affect the lenders yield?

#2. You are offered a bullet loan of 250,000 at 6% for 36 months with 2 points. What is your expected financing cost expressed as an EAR assuming you make monthly interest only payments and repay the loan at month 36?

If you choose to make payments of $2000 per month, and then repay the balance at month 36, what will your expected financing costs (expressed as EAR) be?

Why are these different?

#3. To buy your dream home you use a 4/16 reset loan that pays interest only (bullet loan) for the first 4 years, followed with a reset payment to amortize over the remaining 16 years. The loan amount is $180,000 at 5.5%, with 2 discount points (to the lender) and $875 in third party closing costs which the borrower must pay.

a) What net amount does the lender disburse?

b) What net amount do you as a borrower receive?

c) What is your monthly payment during the first 4 years?

d) What is your monthly payment during the remaining 16 years?

e) What is the FTLAPR on this loan?

f) What is your balance 6 years after you take out the loan

g) If you repay this loan after 6 years, what is the yield (expressed as an APR) for the lender?

h) What is the yield expressed as an EAR? i) If you repay this loan after 6 years, what is the effective borrower cost (EBC) to you (expressed as an APR)?

j) What is the EBC expressed as an EAR?