REAL ESTATE FINANCE EXAM
Exam 2 Name:
1. Suppose you considering an ARM with the following characteristics (50 points):
|
Mortgage amount |
$2,000,000 |
|
Index |
1-year Treasury Bill yield |
|
Margin |
2.50 |
|
Maximum annual adjustment |
2% |
|
Lifetime interest cap |
6% |
|
Discount points |
2.00 |
|
Loan maturity |
30 years |
a. If the Treasury Bill yield is currently 6 percent, what is the monthly payment for the first year (10 points)?
b. If the index moves to 7.5 percent at the end of the first year, what is the monthly payment for year 2 (20 points).
c. If the loan is paid off at the end of year 2, what is the effective cost (yield) (20 points)?
2. Consider a PLAM with the following features (50 points):
|
Mortgage amount |
$190,000 |
|
Mortgage term |
30 years |
|
Current real rate |
5% |
|
Inflation for the next 3 years respectively |
2%, 3%, 5% |
|
Mortgage payments adjusted annually |
|
a. What are the monthly payments for each of the first 3 years (10 points)?
b. What is the effective cost if the loan is repaid at the end of year 3 (20 points)?
c. What is the effective cost if the loan is repaid at the end of year3 and the lender charges 2 discount points up front (20 points)?