Exercise #6
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Finance
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Nov 24, 2024
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THE UNIVERSITY OF HONG KONG
Fall Semester 2023-24
FINA2382 Real Estate Finance
In-Class Exercise
Remark: This will NOT be graded, only for review purpose
Consider the following
Collateralized Mortgage Obligations
with four classes of
securities issued.
Asset Pool:
5-year, 3% fixed rate Mortgages = $18,000,000
Overcollaterization = $3,500,000
Tranche
Stated maturity
Coupon Rate
Amount Issued
A
2 years
2.50%
$5,000,000
B
3 years
2.75%
$3,500,000
C
4 years
3.15%
$3,000,000
Z
5 years
3.25%
$3,000,000
Equity = $3,500,000
All cash flows are annual.
a)
The total payment to Tranche A at the end of year 1.
b)
The total payment to Tranche B at the end of year 2.
c)
The total payment to Tranche C at the end of year 2.
d)
The total payment to Tranche Z at the end of year 2.
e)
The residual cash flow to equity at the end of year 2.
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ONLINE 721757
K
Complete the first month of the amortization schedule for a fixed-rate mortgage.
Mortgage: $110,000
Interest rate: 6.5%
Term of loan: 25 years
Click the icon to view the Real Estate Amortization Table.
Payment
Number
1
Amortization Schedule
Total Payment Interest Payment Principal Payment Balance of Principal
(a) $
(b) $
(b) $
(d) $
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Amortization schedule
Loan amount to be repaid (PV)
$25,000.00
Interest rate (r)
11.00%
Length of loan (in years)
3
a. Setting up amortization table
Formula
Calculation of loan payment
#N/A
Year
Beginning Balance
Payment
Interest
Repayment of Principal
Remaining Balance
1
2
3
b. Calculating % of Payment Representing Interest and Principal for Each Year
Year
Payment % Representing Interest
Payment % Representing Principal
Check: Total = 100%
1
2
3
Formulas
Year
Beginning Balance
Payment
Interest
Repayment of Principal
Remaining Balance
1
#N/A
#N/A
#N/A
#N/A
#N/A
2
#N/A
#N/A
#N/A
#N/A
#N/A
3
#N/A
#N/A
#N/A
#N/A
#N/A
b. Calculating % of Payment Representing Interest and Principal for Each Year
Year
Payment %…
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Type of Loan/Investment
Automobile loans
Furniture loans
Other secured loans
Signature loans
Risk-free securities
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$440000
$ 220000
$ 660000
Annual Rate of Return (%)
xxx>
9
What is the projected total annual return?
$514800
11.
The credit union will have $2,200,000 available for investment during the coming year. State laws and credit union policies impose the following restrictions on the composition
. Risk-free securities may not exceed 30% of the total funds available for investment.
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. Furniture loans plus other secured loans may not exceed the automobile loans.
Other secured loans plus signature loans may not exceed the furids invested in risk-free securities.
12
How should the $2,200,000 be allocated to each of the loan/investment alternatives to maximize total annual return?
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$ 22
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Complete the first month of the amortization schedule for a fixed-rate mortgage. Complete parts (a) through (d).
Mortgage: $103,000
Interest rate: 5.5%
Term of loan: 15 years
Click the icon to view the Real Estate Amortization Table.
Complete the first payment of the amortization schedule.
(Do not round until the final answer. Then round to the nearest cent as needed.)
Amortization Schedule
Payment
Number
1
Total
Payment
(a) $841.60
Interest
Payment
...
(b) $472.03
Principal
Payment
(c) $369.57
Balance of Principal
Save
(d) $472.03
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Question 17 options:
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The effective interest rate of the loan will be 12.00%p.a.
2)
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3)
The effective interest rate of the loan will be 13.64%p.a.
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Question 1:
Part A.
The current 10 year treasury note is approaching the important threshold of:
a) 2.75%
b) 2.95%
c) 3.25%
d) 2.0%
Part B.
In a real estate investment, you may want to obtain a mortgage. In so doing, which year would you expect to see the highest amount of principal pay-down (in a payment mix of principal and interest)?
a) year 15
b) year 20
c) year 10
d) year 25Part C.
In a Fast Market, you would rather sell a stock using a:
a) Market Order
b) Market On Close Order
c) Limit Order
d) Market On Open OrderPart D.
Given that equity markets are asymmetric in their respective moves, markets are said to take________________________
a) the slow grind higher into perpetuity
b) the stairs down and the elevator up
c) the stairs up and your mom home
d) the stairs up and the elevator down
Part E.
It is said that traders have come to employ the use of technical analysis potentially for all of the following reasons except:…
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G. Find the interest rate (APR) on a 27-year mortgage with a initial loan amount of $358,000, if the monthly payment is $2229.45
Let's use references for input values; and be sure to annualize the rate!
INPUTS:
OUTPUT:
Period
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Rate is
APR
Payment
2229.45
Loan amount
358000
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