Keyi Xu
RE 410, Spring 2007-2008
Assignment 2 – Solutions:
Total Points: 15
*Grading Criteria for Assignments and Exams:
Must show computing process (Inputs to Calculator
and/or Equations, CFs…) to receive Any Credit
.
If correct process is shown in calculations but
answers are incorrect, partial credits will be given. Rounding your answers: Please keep at least two
digits after the whole number (example: $599.55
).
* Effective Date: 2/19 (First two written assignments are exempt)
(5 points) 1. Consider a constant payment mortgage of $100,000, maturity 30 years, interest rate 6%,
monthly payments. What is the yield of the mortgage if
Step 1: PV = $100,000, Namt = 360, I = 6%, FV = 0, ~PMT = $599.55
(1 point)
(a) No point, no prepayment. 6%
(1 point)
(b) No point, prepaid after 10 years? 6%
(1 point)
(c) 1 point, and no prepayment
After Step 1, change PV = $99,000, ~I = 6.09%
(1 point)
(d) 1 point, prepaid after 10 years, no prepayment penalty
After Step 1, change N = 120, ~FV = 83,685.72, then ~I = 6.14%
(1 point)
(e) 1 point, prepaid after 10 years, 2% of prepayment penalty
After Step 1, change N = 120, ~FV = 83,685.72, *1.02 = 85,359.44 then press FV again, change PV = 99,000, ~I =
6.27%
(3 points) 2. Consider a constant payment mortgage of $100,000, maturity 30 years, interest rate 6%,
monthly payments with 2 up front points. What is the value of the mortgage after 4 years, if the market