Describe the payoffs to the real estate investor

Assignment Help Finance Basics
Reference no: EM132402960

A real estate investor has bought an office building valued at $100 million. After a 10% down payment for the property price, the investor has borrowed a one-year mortgage loan at 10% interest rate from Nopay Bank to finance the remaining purchase price. The credit rating of the investor is ABB indicating that his probability of default is 3%. The current market value of the office building is $100 million. The office building is pledged with Nopay Bank as collateral. The market value of the office building at the end of one year is expected to be either up 30% or down 30%. The risk-free rate of interest to Nopay Bank is 4%

a) Describe the payoffs to the real estate investor.

b) Describe the payoffs to the bank.

c) If Nopay Bank requires the investor to buy default insurance, how much would the insurance cost?

d) What is the default insurance cost if the down payment is 20% instead?

e) What is the default insurance cost if the volatility of the office price is expected to be 50% instead

Reference no: EM132402960

Questions Cloud

Qualitative aspects of retirement planning : Retirement Planning is not all about estimating and meeting a number. Discuss two (2) other qualitative aspects of retirement planning one should consider.
What is the 2007 operating cash flow : Q1) What is the 2007 operating cash flow? Q2) What is the 2007 cash flow to creditors?
Which form of financing is preferable : Which form of financing is preferable, if debt and equity are treated symmetrically?
What is the firm value : After consulting its bank, the company learned what interest rates it is likely to face as it increases its debt. D/E=10%, pretax cost of debt=6%
Describe the payoffs to the real estate investor : a) Describe the payoffs to the real estate investor. b) Describe the payoffs to the bank.
Determine the current value of the college fund : Determine the current value of the college fund which the Gohs have set up 5 years ago.
Estimate the projected future value of the managed fund : Estimate the projected future value of the managed fund in 20 years' time and compute the projected annualised returns of the endowment insurance.
Determine the current value of the savings fund : (a) Determine the current value of the savings fund which the Chuas have set up 4 years ago.
Retirement planning in singapore : Retirement means different things to different people and industry observers say retirement aspirations of Singaporeans have evolved over time.

Reviews

Write a Review

Finance Basics Questions & Answers

  Find the unpaid balance

You have taken an amortized loan at 8.7% for 6 years to pay off your new car, which costs $12,000. After 5 years of monthly payments of $214.52, you decide to pay off the loan. Find the unpaid balance. Assume monthly payments.

  Create a personal balance sheet for your assets

Create a personal balance sheet for your assets, liabilities, and net wort - create a personal cash flow statement with your total income, expenses and your net cash flow.

  What is the average net profit for each flight

SCA receives a marginal profit of $100 for each passenger who books a reservation ( regardless whether they show up).

  What would be the cost of that capital

If a company is going to finance a project entirely with retained earnings, what would be the cost of that capital? Why?

  What would be the debt ratio if the equipment were leased

If the equipment is leased, the lease would not have to be capitalized. RC's balance sheet prior to the acquisition of the equipment is as follows:

  What will your payment be to local bank suppose your 10

imagine that you have decided you need a new car but not any car will do you have decided to purchase the car of your

  Incorporate a product strategy on coca cola

Select the Foreign Country of your choice with a brief size description and main economic and social factors

  Compute the number of bottles the restaurant should stock

Compute the number of bottles the restaurant should stock to have at most a 10% chance of running out over the next 50 days

  What are the firm market value capital structure weights

The market risk premium is 8.2 percent, T-bills are yielding 3 percent, and Titan Mining's tax rate is 35 percent.

  Represents a financial liability or an equity instrument

The entity for which it represents a financial asset, and the other entity for which it represents a financial liability or an equity instrument;

  What was delta payout ratio for fiscal year

Delta Corporation earned $3.50 per share during fiscal year 2009 and paid dividends of $0.70 per share. During the fiscal year that just ended on December 31.

  Contract and still create value for its stockholders

What is the lowest possible per shovel price that Merton can offer for the contract and still create value for its stockholders?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd