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1) Rimsa Savings is savings institution which provided Carson Company with mortgage for its office building. Rimsa currently offered to refinance mortgage if Carson Company will change to fixed-rate loan from adjustable-rate loan.

a) Describe interaction between Carson Company and Rimsa Savings?

b) Why is Rimsa willing to permit Carson Company to transfer its interest rate risk to Rimsa? (Suppose that there is upward-sloping yield curve.)

c) If Rimsa sustains mortgage on office building bought by Carson Company, who is ultimate source of money which was given for office building? If Rimsa sells mortgage in secondary market to pension fund, who is the source that is basically financing office building? Why would the pension fund be willing to buy this mortgage in secondary market?

Basic Finance, Finance

  • Category:- Basic Finance
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