Use the following setup to answer questions 1 9.

SETUP: Four hundred households receive mortgage loans from Packer Bank to buy homes. The buyers have an annual gross income of $45,000 and borrow $100,000 on a 30-year fixed rate loan of 6 percent. The annual real estate taxes and annual homeowners insurance premiums are $2,400 and $900, respectively. The borrowers also receive guarantees from the Federal Housing Administration (FHA). Packer Bank securitizes all the loans and sells them as GNMA mortgage pass-through securities to Titan Investments.

1. What is the monthly loan principal & interest payment (to two decimal places)? Also, complete the timeline and financial calculator box needed to solve this problem.

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Enter
	N	I/Y	PV	PMT	FV
Solve for

2. What would be the PITI for each loan (to two decimal places)? Show your work.

3. What would be the front-end ratio for each loan (to two decimal places in percent)? Show your work and explain if the ratio is satisfactory.

4. What would be the principal amount of the loan after 10 years of payments have been made (to nearest dollar)? Also, complete the timeline and financial calculator box needed to solve this problem.

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Enter
	N	I/Y	PV	PMT	FV
Solve for

5. What would be the principal amount of the loan after 20 years of payments have been made (to nearest dollar)?

6. What would be the principal amount of the loan after 30years of payments have been made?

7. What participant(s) in the setup above holds the interest rate risk associated with mortgage loans? Explain your answer.

8. What participant(s) in the setup above holds the default rate risk associated with mortgage loans? Explain your answer.

9. What participant(s) in the setup above holds the prepayment rate risk associated with mortgage loans? Explain your answer.