Question
You are trying to estimate the price risk faced by a bank that owns a 30 year fixed rate mortgage that has an 8% annual
You are trying to estimate the price risk faced by a bank that owns a 30 year fixed rate mortgage that has an 8% annual rate with monthly payments of $1,100.65. The loan is for $150,000 (i.e. value of the loan originally is $150,000). You consider the change in the price (present value) of this asset if rates fall by 1%. What is the percent change in the price from rates falling 1% (suppose the change happens immediately when there are still 30 years of monthly payments remaining)? Give your answer to the closest 0.01% and enter your answer as a percentage (e.g. if your answer is one and a half percent, write 1.50).
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