Consider a bank that has made 100 mortgage loans of the, Ask an Expert

Economics

Consider a bank that has made 100 mortgage loans of the following form:

loan amount: $200,000

fixed mortgage rate: 5.4%

length/maturity: 30 years

payment frequency: monthly

An investor is contemplating the purchase of this pool of mortgage loans. For the investor, the annual rate of return on alternative investments is 4.?2%. Assume that the mortgage pool does not have any default risk and that there are no fees to be paid in the transaction. Calculate the amount that the investor is willing to pay for the pool of mortgage loans. Using the receipts of this sale, how many new mortgage loans of the above form can the bank make? Support your answer with calculation.

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91876241

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