Reference no: EM132989834

A. Assume the annual interest rate on a $500,000 7-year balloon mortgage is 6 percent. Payments will be made monthly based on a 30-year amortization schedule.

-What will be the monthly payment?
-What will be the balance of the loan at the end of year 7?
-What will be the balance of the loan at the end of year 3?
-Assume that interest rates have fallen to 4.5% at the end of year 3. If the remaining mortgage balance at the end of year 3 is refinanced at the 4.5 percent annual rate, what would be the new monthly payment assuming a 27-year amortization schedule?
-What is the difference in the old 6 percent monthly payment and the new 4.5 percent payment?
-What will be the remaining mortgage balance on the new 4.5 percent loan at the end of year 7 (four years after refinancing)?
-What will be the difference in the remaining mortgage balances at the end of year 7 (four years after refinancing)
-At the end of year 3 (beginning of year 4), what will be the present value of the difference in monthly payments in years 4-7, discounting at an annual rate of 4.5 percent?
-At the end of year 3 (beginning of year 4), what will be the present value of the difference in loan balances at the end of year 7, discounting at an annual rate of 4.5 percent?
-At the end of year 3 (beginning of year 4), what will be the total present value of lost payments in years 4-7 from the lender's perspective?
-If the mortgage contains a yield maintenance agreement that requires the borrower to pay a lump sum prepayment penalty at the end of year 3 equal to the present value of the borrower's lost payments in years 4-7, what should that lump sum penalty be?B. You are considering purchasing an office building for $2,500,000. You expect the potential gross income (PGI) in the first year of operations to be $450,000; vacancy and collection losses to be 9 percent of PGI; and operating expenses and capital expenditures to be 42 percent of effective gross income (EGI).

-What is the estimated Net operating income?
-What is the implied first year overall capitalization rate?
-What is the effective gross income multiplier?