A price level adjusted mortgage (PLAM) is made with the following terms: Amount = $96,600 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).
Mortgages
A mortgage is a formal agreement in which a bank or other financial institution lends cash at interest in return for assuming the title to the debtor's property, on the condition that the obligation is paid in full.
Mortgage
The term "mortgage" is a type of loan that a borrower takes to maintain his house or any form of assets and he agrees to return the amount in a particular period of time to the lender usually in a series of regular equally monthly, quarterly, or half-yearly payments.
A price level adjusted mortgage (PLAM) is made with the following terms:
Amount = $96,600
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?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 10 images
