Calculate the effective yields of the three mortgages

Reference no: EM132806791

Question - Bankers at New Savings are setting mortgage rates. They first determine the interest rate for 30-year FRM to be 4.5% without any discount point, which is at the average level in the region. They then consider two choices for the FRM with discount points as below:

Choice 1: 30-year FRM @ I = 3.50%, and 1 point.

Choice 2: 30-year FRM @ I = 3.50%, and 2 points.

1. Calculate the effective yields of the three mortgages for year 1, 2, 5, 15, 30.

2. Briefly graph the yield curves.

3. Which of the two choices would you advise them to offer to the market and why?

Reference no: EM132806791

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