Question
Suppose you are the manager of a mortgage department at a savings bank. Under the state usury law, the maximum interest rate allowed for mortgages
Suppose you are the manager of a mortgage department at a savings bank. Under the state usury law, the maximum interest rate allowed for mortgages is 10% compounded annually.
If you granted a $50,000 mortgage at the maximum rate for 30 years, what would be the equal annual payments?
If the current market internal rate on similar mortgages is 12%, how much money does the bank lose by issuing the mortgage described in (a)?
The usury law does not prohibit banks from charging points. One point means that the borrower pays 1% of the $50,000 loan back to the lending institution at the inception of the loan. That is, if one point is charged, the repayments are computed as in (a), but the borrower receives only $49,500. How many points must the bank charge to earn 12% on the 10% loan?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started