You are borrowing $250,000 to buy a house, using a standard, 30-year mortgage. Your mortgage lender offers a 5.50% mortgage with no points, or a 5.20% mortgage with X points. You plan on living in the house for exactly 48 months, paying only the required payment each month, and without refinancing your mortgage. What points will make you indifferent between the two mortgages? Use the 5.50% rate to discount cash flows between the two options. Note: all rates in the problem are nominal annual rates with monthly compounding. Recall, 1 point is 1% of the mortgage. Carry your answer to 2 decimal places. For example, if your answer is 1.255 points, answer "1.26".

You are borrowing $250,000 to buy a house, using a standard, 30-year mortgage. Your mortgage lender offers a 5.50% mortgage with no points, or a 5.20% mortgage with X points. You plan on living in the house for exactly 48 months, paying only the required payment each month, and without refinancing your mortgage. What points will make you indifferent between the two mortgages? Use the 5.50% rate to discount cash flows between the two options. Note: all rates in the problem are nominal annual rates with monthly compounding. Recall, 1 point is 1% of the mortgage. Carry your answer to 2 decimal places. For example, if your answer is 1.255 points, answer "1.26".

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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