REM 400 Problem set

# REM 400 Problem set - 3 En You are a loan ofﬁce at the...

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 3. En You are a loan ofﬁce at the First Federal ﬂeet of Sndenry (FFTS) and wish to oﬁ'er an interest—only. twenty year, ﬁnd rate Canadian mortgage with a monthly coupon rate of 28% [28 basis points) to a prospective home buyer. W'hat would you armoimce to him as the annual rate on this mortgage? a. 5.17% l3. 9.01% 1:. 1.054% (1. 3.33% e. 0.17% Today: your bank issues you an interest-only mortgage: priced to par. with an initial balance of \$1. 000,000.00, a term to maturity of ﬁve years. and an annual coupon rate of eight percent (8.00%). Being a Ryerson student: the bank knows this mortgage is entirely devoid of the risk of default. We can immediately infer that: a assuming that annualized (oonipounded) market interest rates are also constant. at 8% over the next 50 months: the current markmt value of this mortgage is \$108,000:0ﬁ| b. monthly coupon payments on this mortgage would be \$611110!) e. assuming monthly market diseount rates are also constant at an annualized value of 6.5% the current market value of your mortgage is 59.95.681.20 d. a current six-month net market interest rate of 0% implies the current value of your individual six month coupon payment is \$6494.15 e. none of the above Each week. Ryersenie Developers, a riskless real estate development ﬁrm. ﬁnances its business operations by selling individual mortgage coupons from its portfolio of residential mortgages. The coupons tor sale today all pay \$10,000.00 at their maturity of 11 months. During this morning‘s trading: this coupon exhibited a net market interest rate over its maturity: ”1‘11, of 6.00%. Assuming a year has twelve months1 the average bid price Bu of these coupons at today's auction is approximately: a. 39.57222 b. 39A3335 e. 391753.22 :1. \$9,906.22 e. none of the above Borne by the purchaser of a mortgage: uncertainty about whether the borrower will pay: on time, the entire amount he onus is called a =eredit“ risk b. “liquidity" risk e. mall“ risk d. “inﬂation“ risk e. None of the above Consider the security composed of one insured Canadian coupon payment reaﬁtI-abk! in till-(dye months as a typical example of a. risklesa zero—coupon bond. The one-year market rate of interest established by todayls sales and purchases of this security can be deﬁned in plain English as: 2 ...
View Full Document

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern