+1-415-670-9189
info@expertsmind.com
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
 
Minimize


Ask Question & Get Answers from Experts
Browse some more (Microeconomics) Materials
1. In the US, the wage-skills relationship in the labor market before government intervention is wus=100+0.4s, where s is the number of "efficiency units of skill" and w i
What factors determine the elasticity of industry’s labor demand curve? Based on these factors, discuss labor demand for factory line workers versus labor demand for nurses, w
Explains the policy. Gives an example where it has been used. Explains why it is has improved the problem it was meant to correct. Explains how economic principles are used in
Suppose that there are two manufacturers of smartphones initially and that this market is in equilibrium. Then, suppose that three new firms enter this market. What do you pre
Determine why, given the advantages of international diversification, some firms choose not to expand internationally. Provide specific examples to support your response. As
Analyze the major barriers for entry and exit into the airline industry. Explain how each barrier can foster either monopoly or oligopoly. What barriers, if any, do you feel
The data contained in the following table shows the tradeoffs that occur in an economy that produces only two types of products: pharmaceutical and computer-related technolo
Analyze resource and budgetary considerations within not-for-profit organizations for determining potential challenges to financial operations. Analyze ethical consideration