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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
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
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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 =
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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