You decide to start your Mortgage REIT with $10 million in equity. You will borrow $90 million by issuing a 1-year bond with an annual coupon of 3%, and use the total $100 million to buy MBS. To make things simple, let's represent the MBS portfolio as a 10-year zero-coupon bond that is trading at a yield of 5%.

1. Use the future value formula to calculate the face value of the MBS you can buy with $100 million. Is it higher or lower than the price you paid? Why does this make sense?
2. If interest rates don't change, what will be the value (price) of the MBS portfolio in 1 year? Is it higher or lower than $100 million? Why?
3. How How much do you have to repay at the end of the 1 year on the $90 million bond that you issued.