Please answer these questions: 1. Suppose Erica Watanabe takes out a fixed rate
ID: 2757653 • Letter: P
Question
Please answer these questions:
1. Suppose Erica Watanabe takes out a fixed rate interest-only mortgage. Which of the following situations will make her realize that this is a bad financing decision on this kind of loan?
Rising interest rates after purchasing the home
Falling interest rate after purchasing the home
Rising home values after purchasing the home
Falling home values after purchasing the home
None of the above
2.Which of the following mortgage loans will have a larger monthly interest payment prior to the maturity of the shorter-term loan? Assume a 100-basis point spread between the two loans.
30-year mortgage
15-year mortgage
Total interest payment would be the same
Insufficient information
3. You are considering a 5%, 15-year mortgage with zero points. Noting that mortgage payments are made monthly, calculate your payment and effective annual rate. The loan is for $300,000. PLEASE WORK THIS PROBLEM CAREFULLY.
PMT = $2,372.38; Effective annual rate = 5.1162%
PMT = $2,294.98; Effective annual rate = 5.13%
PMT = $2,372.38; Effective annual rate = 4.99%
PMT = $1,610.46; Effective annual rate = 0.41667%
None of the above
4. You are considering a 4.5%, 15-year mortgage with 2.5 points. Noting that mortgage payments are made monthly, calculate your payment and effective annual rate. The loan is for $300,000. PLEASE WORK THIS PROBLEM CAREFULLY.
PMT = $2,372.38; Effective annual rate = 5.1162%
PMT = $2,294.98; Effective annual rate = 5.13%
PMT = $2,372.38; Effective annual rate = 0.40675%
PMT = $2,294.98; Effective annual rate = 4.99%
None of the above
Rising interest rates after purchasing the home
Falling interest rate after purchasing the home
Rising home values after purchasing the home
Falling home values after purchasing the home
None of the above
2.Which of the following mortgage loans will have a larger monthly interest payment prior to the maturity of the shorter-term loan? Assume a 100-basis point spread between the two loans.
30-year mortgage
15-year mortgage
Total interest payment would be the same
Insufficient information
3. You are considering a 5%, 15-year mortgage with zero points. Noting that mortgage payments are made monthly, calculate your payment and effective annual rate. The loan is for $300,000. PLEASE WORK THIS PROBLEM CAREFULLY.
PMT = $2,372.38; Effective annual rate = 5.1162%
PMT = $2,294.98; Effective annual rate = 5.13%
PMT = $2,372.38; Effective annual rate = 4.99%
PMT = $1,610.46; Effective annual rate = 0.41667%
None of the above
4. You are considering a 4.5%, 15-year mortgage with 2.5 points. Noting that mortgage payments are made monthly, calculate your payment and effective annual rate. The loan is for $300,000. PLEASE WORK THIS PROBLEM CAREFULLY.
PMT = $2,372.38; Effective annual rate = 5.1162%
PMT = $2,294.98; Effective annual rate = 5.13%
PMT = $2,372.38; Effective annual rate = 0.40675%
PMT = $2,294.98; Effective annual rate = 4.99%
None of the above
Explanation / Answer
1. Falling interest rates after Purchashing the Home will effect erica more as she would be paying at higher interest vis-a-vis the market rates
2.The 30 Year mortgage would have larger monthly interest rates
3.P = 300,000 , R = 5%, nper = 5%/12 = 0.41667% = 0.0041667
T =15 Years, nper = 15 *12=180 Months
Using the excel formula, PMT= PMT(Rate,nper,PV)
= PMT( 0.0041667,180,300000)
PMT = 2372.38$ , Annualized rate = 5.1162%
4. Similarly, here , PV $300000
Rate = 4.5%, nper =0.00375
PMT = 2294.98 $, annualized rate 4.59 %
Hence none of the above