Ques 1Suppose you
decide to borrow $330,000 of cash to purchase a house and take out
a 20-year fixed rate mortgage that has a
quoted rate of 8% per year.
- What is the size of your monthly payment?
Suppose that just after making your
60th monthly payment, mortgage rates are
quoted at 6% per year for both 10-year and 30-year
mortgages. Suppose you decide to refinance using a
30-year mortgage. What is your gain from
refinancing
Ques 2 Consider a cash flow that
arrives in 4 years and has an expected value of 200.
Suppose the risk-free rate is 4%. The
cash flow’s beta is 0.8 and the variance of the cash flow is 1.3.
Further suppose the risk premium on the market portfolio is 5%.
What is the cash flow’s present value?
