A price level adjusted mortgage (PLAM) is made with the following terms: Amount = $96, 800 Initial interest rate = 4 percent Term = 30 years Points = 6 percent Payments to be reset at the beginning of each year. Assuming inflation is expected to increase at the rate of 6 percent per year for the next five years: Required: a. Compute the payments at the beginning of each year ( BOY). b. What is the loan balance at the end of the fifth year? c. What is the yield to the lender on such a mortgage?
A price level adjusted mortgage (PLAM) is made with the following terms: Amount = $96, 800 Initial interest rate = 4 percent Term = 30 years Points = 6 percent Payments to be reset at the beginning of each year. Assuming inflation is expected to increase at the rate of 6 percent per year for the next five years: Required: a. Compute the payments at the beginning of each year ( BOY). b. What is the loan balance at the end of the fifth year? c. What is the yield to the lender on such a mortgage?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A price level adjusted mortgage (PLAM)
is made with the following terms:
Amount = $96, 800 Initial interest rate
= 4 percent Term = 30 years Points
= 6 percent Payments to be reset at the
beginning of each year. Assuming
inflation is expected to increase at the
rate of 6 percent per year for the next five
years: Required: a. Compute the
payments at the beginning of each year (
BOY). b. What is the loan balance at the
end of the fifth year? c. What is the yield
to the lender on such a mortgage?
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