1. What is the market rate of interest at which the lender can loan proceeds if the borrower prepaid the loan at the end of year 12? 2. What is the difference between the interest rate on the existing loan and the market rate of interest?
1. What is the market rate of interest at which the lender can loan proceeds if the borrower prepaid the loan at the end of year 12? 2. What is the difference between the interest rate on the existing loan and the market rate of interest?
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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i need solution part1 and 2
Transcribed Image Text:Yield Maintenance:
An investor has a $50,000,000 loan against a property that bears interest-only at 8.00% over the
15-year loan term. At loan origination the 10-year treasury rate of interest (i.e. the risk free
rate) was 5.50%. Assume it's now the end of year 12 of the loan's term, the lockout period has
expired and the treasury rates for the 2, 3 and 4-year terms total 1.50%, 2.50% and 3.50%.
1. What is the market rate of interest at which the lender can loan proceeds if the borrower
prepaid the loan at the end of year 12?
2. What is the difference between the interest rate on the existing loan and the market rate of
interest?
3. What is the difference in monthly payment?
4. Compute the present value (Yield Maintenance) of the difference between the existing and
market monthly payments over the remaining term of the loan.
n =
PMT =
PV =
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