QUESTION 2

"A bank makes a 30 year Fully Amortizing FRM for $1,000,000 at an annual interest rate of 4.13% compounded monthly, with monthly payments. What is the market value of this loan after 7 years of payments if the annual interest rate for this loan is 10% compounded monthly?"

QUESTION 3

"A bank makes a 30 year Fully Amortizing FRM for $1,000,000 at an annual interest rate of 4.13% compounded monthly, with monthly payments. Suppose inflation is 2% per year, compounded monthly. What is the real value of the 20th payment?"

QUESTION 4

"A bank originates a 30 year Fully Amortizing FRM at an annual interest rate of 5% with monthly compounding and monthly payments. If 10 years later, the bank borrows at 6%, what is this bank s Net Interest Margin (NIM) on this FRM?"

QUESTION 5

"A 30 year 1/1 ARM has an initial rate of 7.85%. In the future the rate will reset to 225 basis points above the LIBOR index with no rate caps or floors. In 1 year, at the time of the first reset, the LIBOR is 1%. What will be the fully indexed rate at the first reset?"

QUESTION 6

"Ann gets a 30 year 1/1 Fully Amortizing ARM for $1,000,000, with monthly payments and monthly compounding. The initial rate is 3%. In the future, the rate will reset to 250 basis points above the LIBOR. There are no rate caps or floors. Suppose at the first reset, the LIBOR was 6%. What is the monthly mortgage payment for the second year?"

QUESTION 7

"Ann gets a 30 year 1/1 Fully Amortizing ARM for $1,000,000, with monthly payments and monthly compounding. Ann pays $10,000 in closing costs. The initial rate is 2%. In the future, the rate will reset to 250 basis points above the LIBOR. There are no rate caps or floors. Suppose at origination the LIBOR was 1%. What is the annualized true APR for the loan?"

QUESTION 8

"Ann got a 15 year Fully Amortizing FRM for $1,000,000 at an annual interest rate of 7% compounded monthly, with monthly payments. After 5 years of payments, Ann can refinance the balance into a 10 year Fully Amortizing FRM at an annual interest rate of 5.25% compounded monthly, with monthly payments. If Ann refinances into this 10 year loan, what will be her monthly savings on her mortgage payment? "

QUESTION 9

"Ann got a 30 year Fully Amortizing FRM for $1,000,000 at an annual interest rate of 8% compounded monthly, with monthly payments. After 5 years of payments, Ann can refinance the balance into a 25 year Fully Amortizing FRM at an annual interest rate of 5% compounded monthly, with monthly payments. Refinancing will cost Ann 2 points and $1,500 in closing costs. If Ann refinances into this loan after 5 years, what will be her total cost of refinancing?"

QUESTION 10

"Ann got a 30 year Fully Amortizing FRM for $1,000,000 at an annual interest rate of 7% compounded monthly, with monthly payments. After 5 years of payments, Ann can refinance the balance into a 25 year Fully Amortizing FRM at an annual interest rate of 4% compounded monthly, with monthly payments. Refinancing will cost Ann 1 point and $1,500 in closing costs. If Ann refinances into this loan and makes payments for 25 years, what will be her annualized IRR from refinancing?"

QUESTION 11

"Jim has an annual income of $240,000. Jim is looking to buy a house with monthly property taxes of $1,000 and monthly homeowner s insurance of $200. Apple bank has a maximum front end DTI limit of 28%. Considering only the front end DTI limit, what is the most they will allow Jim to spend on a monthly mortgage payment?"

QUESTION 12

"Jim has an annual income of $240,000. Jim is looking to buy a house with monthly property taxes of $1000 and monthly homeowner s insurance of $200. Jim has $1,500 in monthly student loan payments and an average monthly credit card bill of $1,000. Apple bank has a maximum front end DTI limit of 28% and a maximum back end DTI limit of 36%. Considering both the front end DTI limit and the back end DTI limit, what is the most they will allow Jim to spend on a monthly mortgage payment?"

QUESTION 13

"Jim has an annual income of $240,000. Jim is looking to buy a house with monthly property taxes of $1,000 and monthly homeowner s insurance of $200. Jim has $1,500 in monthly student loan payments and an average monthly credit card bill of $1,000. Apple bank has a maximum front end DTI limit of 25% and a maximum back end DTI limit of 35%. Jim will make the biggest mortgage payment he can that satisfies both the front end DTI limit and the back end DTI limit. Jim will get a fully amortizing 30 year FRM at an annual rate of 3.40%, with monthly payments, compounded monthly. What is the biggest mortgage loan Jim can get?"

QUESTION 14

"Sam bought a house that costs $1,000,000. Sam got a 97% LTV loan. The lender demanded that Sam buy private mortgage insurance to insure the portion of the loan over 80% LTV. Suppose 5 years later, Sam s mortgage balance is $900,000. However Sam defaults and his house sells for $750,000 in a foreclosure auction. How much will the mortgage insurance company pay Sam s lender?"

QUESTION 15

"Ann s average income tax rate is 30%, and her marginal income tax rate is 37%. Her property tax bill for 2015 was $12,000 and her total interest payment on her mortgage was $9,500. Based on this information, what is Ann s total income tax shield (i.e. how much is Ann saving on her income taxes)?"

QUESTION 16

"Jill buys a house for $100,000 with no mortgage. Jill s buying costs were 5% of the house price. Jill lives there for exactly 30 years and sells it. Suppose Jill s annual cost of ownership net of tax savings is exactly equal to the annual rent she would have paid to live in the same house. Suppose the price of Jill s house grows 4.5% per year (compounded annually). Suppose selling expenses are 8% of the sale price. What is Jill s annual IRR from owning net of renting?"

QUESTION 17

"Ann got a 30 year FRM with annual payments equal to $12,000 per year. After 2 years of payments Ann will refinance the balance into a 28 year FRM with annual payments equal to $10,000 per year. Refinancing will cost Ann $2,500. Ann will prepay the new loan 3 years after refinancing. She will save $4,000 on her loan balance when she prepays. Using all the information given, write the NPV formula for Ann s refinancing decision if her annual discount rate is i. Plug in all the numbers you can. Only plug-in one final net cash-flow for each time period. Feel free to omit periods when the net cash-flow is zero. Sample Answer: NPV(i)= -100 + (5)/(1+i)^1 + 105/(1+i)^2"

QUESTION 18

"Ann got a 30 year FRM with annual payments equal to $12,000 per year. After 2 years of payments Ann will refinance the balance into a 28 year FRM with annual payments equal to $10,000 per year. Refinancing will cost Ann $2,500. Ann will prepay the new loan 3 years after refinancing. She will save $4,000 on her loan balance when she prepays. What is Ann s annualized IRR from refinancing?"