+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
Calculate the ratio of total real government purchases to real GDP, quarterly, from 1947 to 2012. Also, calculate the real interest rate on a quarterly basis as a three-month
What effect will each of the following most likely have on the supply of corn in a competitive market? State what happens to supply. A....the development of an improved corn s
What will be the rate of return earned by most firms in the industry in long-run equillibrium - If firms can copy each other's technology, what will be the rate of return even
What three factors determine whether two economics with separate fiscal and monetary authorities should form a currency union Give illustration of each factor using NAFTA ec
The Federal Government and the Federal Reserve Bank both use their respective policy tools to make "corrections" to the economy. As we learned, both entities are able to s
What effects would joining a MCO have on your clinic regarding staffing, patient volume, and financial stability - what policies and procedures should be used by the MCOs to r
How do costs play into your everyday life? For example, why might it be cheaper to drive on a toll-road vs. a free-access interstate Also, can you identify situations where
Define the following four terms, with reference to your description of the power/wind-speed curve: cut-in wind speed, rated wind speed, shut-down wind speed, and rated power