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 interestonly 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 sixmonth 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 reaﬁtIabk! in till(dye months
as a typical example of a. risklesa zero—coupon bond. The oneyear market rate of interest established
by todayls sales and purchases of this security can be deﬁned in plain English as: 2 ...
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 Spring '16
 Debt, Interest, Interest Rate, Mortgage loan

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