REM 400 Problem set

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

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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 ...
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