PLEASE WRITE OUT FORMULA AS SHOWN IN PROBLEM.

--use (1+i) for unknown discount rate

"Ann buys a property that costs $1,000,000. She finances the purchase with a 70% LTV mortgage. She gets a 20 year interest only fixed rate mortgage at an annual interest rate of 5%, with annual compounding and annual payments. Ann must pay 2 points upfront in mortgage closing costs (as a % of the loan amount). The loan has a 5/4/3/2/1 prepayment penalty structure (she must pay a 5% penalty if she prepays at any time in the first year, 46 penalty in the second year etc). Suppose Ann will sell the property in 3 years, after her 3rd year s mortgage payment and pay off the balance when she sells. Carefully write out the NPV of Ann s mortgage as a function of a general annual discount rate i. Sample Answer: NPV()= -100 + (5)/(1+i)^1 + 105/(1+i)^2