Annualized percentage yield on the residential mortgage
Course:- Microeconomics
Reference No.:- EM13700178

Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
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
Environmentalists discuss that trade liberalization harmful for the environment. The decisions of World Trade Organization in particular have been subject of much criticism.
Suppose that firms in the short-run are earning above-normal profits. Describe what will take place to these profits in long-run for the following markets:
How efficient is your proposal's address utilization compared to CIDR subnetting? Analyze its effect on a production network, and propose a plan for transitioning to this pr
Discuss the policies which a government can implement to achieve economic growth. To what extent do. Assessment is undertaken to establish the extent of student learning on c
Rising educational levels of women have been central to our discussions of marriage behavior, fertility behavior and labor force behavior. And, education is a focus of the r
If the real interest rate is zero and you expect to retire at age 60 (i.e., if you do not go to professional school, you expect to work for 38 years total), what is the maxi
Does a cubic equation appear to be suitable specification given these data? You may wish to construct a scatter diagram to help you answer this question. Using a computer for
Evaluate the fundamental reasons why price and utilization economic factors in the healthcare setting influence competitive market status in regard to supply and demand for