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pls fill the scheduled table in #a) and #b), and deal c and d in intermediate steps. it's urgent! thx so much #3. Use the
pls fill the scheduled table in #a) and #b), and deal c and d in intermediate steps. it's urgent! thx so much
\#3. Use the following short rate tree. Short rate can increase or decrease in 6 months by cqual probability. Use semi-annual compounding. Now, consider a 1 year mortgage (semi-annually paid) with a semi-annual mortgage rate of 10% and initial principal balance of $10,000. The mortgage is divided into three sequential pay tranches. Tranche A receives the first $3,000 of principal, tranche B receives the next $3,000 of principal, and tranche C receives the remaining $4,000 of principal. (a) Fill in the amortization schedule of the whole mortgage below. (b) Fill the scheduled payments to the A, B, and C tranches, assuming no prepayment. (c) According to the interest tree, calculate 6-month discount factor for each node. Moreover, compute 1-year discount factor today. (d) Assuming that there are no prepayments, what is the value of (i) the whole mortgage? (ii) tranche A ? (iii) tranche B ? (iv) tranche C Step by Step Solution
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