09 Jun Question REAL ESTATE FINANCE EXAM
Question
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)?
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