Annualized percentage rate of the mortgage obtained
Course:- Microeconomics
Reference No.:- EM13700176

Assignment Help
Assignment Help >> Microeconomics

Suppose a mid-sized regional bank has $1 million dollars which it is considering investing either in 30 year zero coupon Treasury bond or in a jumbo 30 year fixed rate residential mortgage with fixed monthly payments of $5650

Assume that the treasury bonds are currently priced to yield 4% if held until maturity. Assume that the bank requires a premium of 150 basis points in the mortgage's annualized yield over Treasury bond yields before it will lend in the residential mortgage market

A) Write down the present value equations that the bank would use to determine the annualized percentage yield on the residential mortgage. (Wherever possible, plug data from the above problem into the equations... you need not actually solve the equations)

B) How will the bank use the information on the annualized percentage rate of the mortgage obtained in part (a) when deciding whether to invest in the T-Bonds or whether to make the residential mortgage?

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Microeconomics) Materials
ECONOMICS 512 Critique the functions of the South African Reserve Bank (SARB) - Discuss functions of money as a medium of exchange. Illustrate your answer with practical examp
An ethical dilemma refers to a situation where you must: treat someone unfairly. choose between equally unsatisfactory alternatives. choose between a correct and an incorrect
What is the relationship between economies of scale and a natural monopoly? What is simultaneous consumption and how does it affect economies of scale? What are
"Perfect Competition" Please responds to the following: Examine a perfectly competitive firm that you have recently purchased a product from, focusing specifically on how it r
If we assume that each firm is a profit maximizer, what is the problem that each firm solves? Calculate the MPL and each firm's demand for labor. Calculate each firm's profits
How do managers use the concept of cost-benefit during the planning phase of the management process and how do managers use the concept of cost-benefit during the performing s
In each of the following examples, what are the significant differences between government-owned and nongovernment-owned enterprises? Why do you think the government owns the
A firm is producing 1,000 units of output with 40 units of labor and 30 units of capital. The marginal product of the last units of labor and capital are, respectively, MPL =