QUESTION 18 "Ann buys a property that costs $1,000,000. She finances the purchase with a 709 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, 49 penalty in the second year etc). Suppose Ann will sell the property in 3 years after her 3rd years mortgage payment and pay off the balance when she sells. Carefully write out the NPV of Anns mortgage as a function of a general annual discount rate : Sample Answer: NPO-100+ (5{1+1)^1 +105/(1+1)^2 TTTT Paragraph Arial 31120 5. E T. %DOQ T' T. O Sx Mashupe. 14 HTH