Calculate the yearly payments received by the FI

Reference no: EM132210906

Question -

(a) Assume the discount rate is 10%. An FI originates a pool of real estate loans worth $2 million with maturities of 5 years and paying interest rates of 10% APR per year. Calculate the yearly payments received by the FI from the mortgage pool at year end cover the five-year period. If the payments are separated into interest only (IO) and principal only (PO) payments, what will be their present values?

(b) Assume the discount rate is 8%. An FI originates a pool of real estate loans worth $2 million with maturities of 5 years and paying interest rates of 10% per year. Prepayments of 5% occur at the end of year 3, and that the payment of the remaining principal occurs at the end of year 4. What is the present value of IO?

Reference no: EM132210906

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