+1-415-670-9189
info@expertsmind.com
Annualized percentage yield on the residential mortgage
Course:- Microeconomics
Reference No.:- EM13700178




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
Public television is funded in part by private dona- tions, even though anyone with a television set can watch for free. Can you explain this phenomenon in light of the free
Normal 0 false false false EN-US X-NONE X-NONE MicrosoftInternetExplorer4
Consulting your text and any other source you would care to cite, and prepare your answer using the word processor of your choice. [200 words is a general guideline, not a
A manufacturing company leases a machine for $31,812 per year. Each unit produced costs $36 in labor and $72 in materials. To break even, 21,000 units must be sold. What is
After few years, cost of production of Panadol increased due to increase in price of paracetamol (one of the main ingredient used in the production of Panadol). Due to this i
Consider the following two projects. Both have costs of $5000 in Year 1. Project 1 provides benefits of $2,000 in each of the first four years only. The second provides benefi
What elements in the external environment could affect Dippin' Dots' strategy in relationship to their growth? Political/Legal, Economic and Global, Sociocultural, Demograph
What will price and output be if there is no dominant firm Now assume that there is a dominant firm, whose marginal cost is constant at $6. Derive the residual demand curve