Problem 1 (20 points) You are going to make the decision about which mortgage to consider by calculating the NPV of switching from the nofee mortgage (benchmark) to each of the top six mortgage listed (sorted by their coupon). To calculate N PV of this decision, calculate the difference in payments today, and over the life of the mortgage, by subtracting the alternative mortgage payments from the no-fee mortgage payments and calculating NPV. Assume that you will be living in the house for the next 30 years for certain and you will never repay the mortgage early. which mortgage should you undertake? 1-(1) In the basic information of the table, Monthly Rate was calculated by dividing Rate ('36) by 1200. why? 1(2) Find the monthly payment of the mortgage. You can apply the formula for PV of Annuity (Chapter 4). 1-(3) Find the difference between Benchmark and Alternative with respect to Upfront Payment and Monthy Payment of Mortgage. For example, if an alternative has upfront cost $100, the difference will be -100, Be careful about the unit of Monthly Rate and Points. Read the footnote of the case about how to calculate upfront cost. 1-(4) Find Net Present Value (N PV) of Alternative products based on 1-(3). You can apply the formula for PV of Annuity (Chapter 4). Be careful about your discount rate. Loan Amount $400,000 Term (Period) 360 (30-yearfixed rate) Fees come off the amount borrowed I . 1-(1) Basic Information 1-(2) 1-(3) Difference between Benchmark and Alternative 1-(4) Mortgage Rate (96) Monthly Rate points ($6) Fee Monthly Payment U pfront Payment Monthly Payment NPV of Alternative Benchmark 400,000 3.5 0.002917 0 0 Benchmark Benchmark Benchmark Alternativel 400,000 3.375 0.002813 0 1620 Alternative2 400,000 3.5 0.002917 0 950 AlternativeS 400.000 3.375 0.002813 1 950 Alternative4 400,000 3.5 0.002917 1 0 AlternativeS 400,000 3.5 0.002917 0.25 1048 Alternativee 400,000 3.5 0.002917 0.364 1727