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You are working for a bank that is issuing 30-year mortgages. To meet your cost of capital, you need to price these mortgages using an
You are working for a bank that is issuing 30-year mortgages. To meet your cost of capital, you need to price these mortgages using an interest rate (stated as an effective annual rate) of 16%. What is the most you can lend to a borrower who can only afford to pay $1,000 per month? (The first payment is made one period after the mortgage is issued, the standard assumption.)
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