You received an investment opportunity in real estate. The required investment amount is $1,000,000. Since you do not have enough money, you are searched for partners. You found one friend who would like to enter to the investment. Although she does not have the necessary funds today, she promise to transfer $400,000 in 4 years.

Accordingly, you have decided to take two loans:

1. 1)A 4-year bullet loan with an annual stated interest rate (APR) of 6.6% compounded
2. monthly. The loan will be paid in a single payment equal to $400,000 (for the interest
3. and principal) at the end of the fifth year;
4. 2)A 25-year mortgage for the remaining required funds to purchase the house. The
5. mortgage has an annual stated interest rate (APR) of 6% and will be repaid in equal monthly payments over the next 25 years.

a. What is your monthly mortgage payment?

4 years in to the mortgage (4 years after you took the mortgage), you are considering paying off your mortgage.

b. If the interest rate of the mortgage remains 6% (APR), what will be the amount you will need to pay in order to pay off the mortgage, 4 years after you took it?

c. Suppose instead that when you came to pay off the mortgage (after 4 years), you found out that the annual interest rate decreased to 5.4% (APR). The bank is demanding a prepayment fee in order to pay off the mortgage. What will be the maximum prepayment fee that you will be willing to pay?