Time Value of Money using the
BAII Plus
1
Lets return to some of the problems we
solved using the financial math formulas
2
Example of use of FV (single sum)
A college student recently received a $40,000 gift from
her grandparents and has decided to inve
The Loan Process
Evaluating the:
Borrower (chapter 10)
Collateral (chapter 11)
Borrower Qualification and
Loan Underwriting Process
What should maximum loan amount be?
What will be settlement costs?
What kind of credit history does borrower have?
Whats th
Alternative Mortgage
Instruments
Problems with FRMs
The tilt effect in periods of high inflation
Inflation expectations are built into the contract rate
Borrowers pay a price for future inflation in each monthly
payment (since payments are constant) -
FINC 3146 HOMEWORK Chapter 5 TVM (Due September 9)
You are advised to provide as much working detail as possible to enable you earn
partial credit even if you do not get the correct answer. Make sure to indicate which
keys and the numbers you enter to get
Ch. 5 homework solutions
You are advised to provide as much working detail as possible to enable you earn
partial credit even if you do not get the correct answer. Make sure to indicate which
keys and the numbers you enter to get the answer.
1. An investo
Interest Rates and Risk
1
Learning Objectives
Should be able to
Describe how interest rates are determined in financial
markets
Describe the Fisher equation and use it to perform simple
numerical calculations
Explain the concept of risk
Name the type
Effective Cost of a Mortgage and
Mortgage Refinancing
Effective Cost of a Mortgage
Need to distinguish between contract interest rate and
effective interest rate
1.The contract interest rate is the rate stated in the loan
agreement
where this is expresse
History and Instruments of
Residential Real Estate Finance
1
Learning Objectives
Should be able to:
Describe how residential lending evolved
Explain the basic characteristics of real estate
financial instruments
List and define the basic provisions of
The Secondary Mortgage Market
(SMM)
Introduction
SMM is the market where existing mortgages
are bought and sold
Begun in the U.S in 1938
Percentage of home mortgage loans
securitized
http:/www.cbo.gov/sites/default/files/cbofiles/ftpdocs/120xx/doc12032/
TIME VALUE OF MONEY
1
Learning Objectives
Should be able to:
Describe the basic mechanics of the time value of
money
Perform calculations related to discounting and
compounding
2
Introduction
Weve established that $1 today is better than
$1 one year f
Flow and sources of real estate
funds
1
Figure 2.1 The flow of funds
Transferred directly, via an intermediary or through a market
SURPLUS ENTITIES
Entities with a surplus
of Funds:
Households
Businesses
Governments
DEFICIT ENTITIES
Funds or credit
Securi
Real Estate and the US Economy
1
Real estate assets single family homes
Were interested in this course in real estate financing of single-family
homes.
Clauretie & Sirmans cite single-family home values as representing in 1998:
?
$10.238 trillion of tot