What is the payment expected by the holders of securities

Assignment Help Financial Management
Reference no: EM131571865

1. A bank has a 5-year $10 million loan that pays annual payments of 7 percent and returns the principal at maturity. The bank can sell the loan with recourse at a price of $9 million and without recourse at a price of $8.9 million. If the probability of default (with no interest or principal being repaid) is 1.5 percent, should it sell the loan with or without recourse (assume risk neutrality)? Explain. [Note: the expected proceeds on the loan sale with recourse is the price times the probability that the loan will NOT default.]

2. Assume a bank originates a pool of short-term real estate loans worth $15 million with maturities of 5 years and with annual interest payments of 7 percent and return of principal at maturity. (These are called “balloon” loans.) If the loans are converted to pass-through securities and the bank charges 50 basis points servicing fee per year, what is the payment expected by the holders (purchasers) of the securities at the end of the first year if 10% of the mortgages are expected to be prepaid? Note: the servicing fee is based on the book value of the loans at the beginning of each year.

Reference no: EM131571865

Questions Cloud

What is the return to the bank on loans : A bank offers one-year loans with a stated rate of 6.5 percent, What is the return to the bank on these loans?
What is the dollar value of conroys operations : What is the dollar value of Conroy's operations? how much would Marston be willing to pay for Conroy?
Calculate down payment and monthly mortgage payment : Calculate the down payment and monthly mortgage payment that Peter and Rachael must pay.
What is the intrinsic value of vandells equity to hastings : What is the value of the tax shields at t = 0? What is the intrinsic value of Vandell’s equity to Hastings? What is Vandell’s intrinsic stock price per share?
What is the payment expected by the holders of securities : what is the payment expected by the holders (purchasers) of the securities at the end of the first year if 10% of the mortgages are expected to be prepaid?
Beginning of every other year for the next eight years : Deposits of $150 are the beginning of every other year for the next 8 years. The first deposit is made today.
Calculate the down payment and monthly mortgage payment : Calculate the down payment and monthly mortgage payment that Peter and Rachael must pay.
What is its present value if the interest rate : A Treasury bond pays $1 million at the end of 20 years. What is its present value if the interest rate is 4%.
Produce cash flows-what is present value of the project : What is the present value of the project if the cost of capital is 5%?

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

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