Assignment:
Problem 1
You borrow a GPM of $120,000 with annual payments and 30-year term. The interest rate is 10% and the payment factors from year 1 to year 30 are: 10%, 20%, 30%, 40%, 50%, 60%, 70%, 80%, 90%, 100%, ..., 100%.
Questions:
1. What are the annual payments for years 1 to 30?
2. What is remaining balance at the end of each year?
3. What are the interest payment and principal payment for years 1 to 30?
Problem 2
You borrow a GPM of $120,000 with annual payments and 30-year term. The interest rate is 10%. The payment rises by 2% each year.
Questions:
1. What are the annual payments for years 1 to 30?
2. What is remaining balance at the end of each year?
3. What are the interest payment and principal payment for years 1 to 30?
Problem 3
Suppose you borrow $250,000 PLAM (Price Level Adjusted Mortgage) for 30 years, monthly payments with $6,000 origination cost. The mortgage rate is 6% with annual outstanding balance adjustments based on the following inflation information:
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Inflation Information
|
|
Year
|
Home Price
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|
1
|
4%
|
|
2
|
-5%
|
|
3-30
|
0
|
Questions:
1. What is the APR for this loan?
2. What is the effective cost if holding the loan for only 5 years?
3. What is the effective cost of this loan if holding only for 1 year?
Problem 4
You decide to buy a house of $250,000 with loan amount of $200,000 and you plan to sell the house in year 10. The lender offers the following three SAM choices with $5,000 origination cost for each choice:
• $200,000; 30 years; monthly payment; 0% interest rate; 50% of appreciated value of the property in year 10. In addition, if the property is sold for a loss in year 10, the lender pays nothing.
• $200,000; 30 years; monthly payment; 3% interest rate; 50% of appreciated value of the property in year 10
• $200,000; 30 years; monthly payment; 5% interest rate; 25% of appreciated value of the property in year 10
The housing market conditions:
1. Home price will appreciate 30% in total for the next 10 years;
2. Home price will stay the same for the next 10 years
3. Home price will decline 30% in total for the next 10 years.