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- What types of risk does the BORROWER (or OWNER) face when taking a commercial real estate loan? What is the potential benefit?
- What is meant by positive financial leverage? What about negative financial leverage?
- What drives the spread between 10-year commercial mortgage rates and the 10-year Treasury yield seen in Exhibit 16-2?
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- What are some of the major differences between loans for residential and commercial real estate? What types of risk does the LENDER face in making commercial real estate loans? What potential benefits does the lender receive? What types of risk does the BORROWER (or OWNER) face when taking a commercial real estate loan? What is the potential benefit? What is meant by positive financial leverage? What about negative financial leverage? What drives the spread between 10-year commercial mortgage rates and the 10-year Treasury yield seen in Exhibit 16-2?How is the market interest rate in the short-term and long-term financial market affected under the Pure Expectations theory when suppliers and users of loanable funds expect that interest rates will decrease the next year?Explain why the return associated with an investment includes both the income paid by the issuer and the change in value associated with the investment. Suppose interest rates on residential mortgages of equal risk were 8 percent in California and 10 percent in New York. a.Could this differential persist? What forces might tend to equalize rates? b.Would differentials in borrowing costs for businesses of equal risk located in California and New York be more or less likely to exist than differentials in residential mortgage rates? Would differentials in the cost of money for California and New York firms be more likely to exist if the firms being compared were very large or very small? c. What are the implications of the trend for financial institutions to become large mega banking organizations and to engage in nationwide branching? Which fluctuate more, short-term or long-term interest rates? Why? Suppose a new process was developed that could be used to make oil out of seawater. The…
- Suppose that you have invested in a principal-only CMO with an expected life of 8 years. What likely will happen to the duration of your security if mortgage interest rates decrease by 2%? The duration will increase The duration will decrease The duration won't change, because the security is guaranteed by the U.S. government Not enough informationProvide an analysis of how the following investment patterns can be explained using theories of behavioral finance. A loan approver is considering a mortgage application. There are two possible scenarios: Scenario A: the loan approver has approved three mortgage applications in a row earlier today. Scenario B: the loan approver has approved two mortgage applications and rejected another one earlier today. Researchers find that the probability for the loan approver to reject the current mortgage applicationin scenario A is higher than that in scenario B.A commercial bank with a structured loan portfolio as shown below is faced with a spike indemand for mortgages and motor vehicle loans from clientsi. What advice would you give the credit manager as to the impact of the spike on the overall riskprofile of the lending portfolio which currently stands at:Motor Vehicle loans: 30%Mortgage loans: 50%Credit Card Advances: 20%ii. What are the risks would you advise the credit manager to consider in the structuring of loans ,given the demand.
- Discuss the pros and cons of a 30 year, fixed rate loan. In addition, should Congress and state legislatures more closely monitor and regulate the mortgage industry in light of the mortgage collapse? Has the mortgage industry recovered enough to not require further government oversight?The financial manager of Town Ltd is concerned about the volatility of interest rates. His company needs to borrow $ 100million in 6 months time for a period of 2 years. Current interest rates are 15% per year for the type of loan that Town Ltd needs. The financial manager does not wish to pay an interest rate higher than this. He is considering using different alternatives. For the following four alternatives, explain how each could be useful to the financial manager; I). Forward rate agreement II). Interest rate futures III). Interest rate options IV). Interest rate swapsYou are a fixed income investor who is expecting an upcoming recession (inverted yield curve). What is the best strategy to maximize your fixed income? A Keep money in existing fixed income assets B Move money to the long term because of higher interest rates C Sell off bonds with longer maturities and buy shorter maturity bonds D Purchase only 10 year government bonds to avoid default risk in a recession
- The housing bubble was created by all of the following EXCEPT a) the growth of CDO's b) the increase in sub-prime mortgage lending c) increase in the income and credit score requirements needed to secure a mortgage d) easy access to low-cost mortgages for allWith interest rates on the rise, many Americans are wondering what theirinvestment strategy should be. A safe (i.e., a virtually risk-free) and increasingly popular way to keep pace with the cost of living is to purchase inflation-indexed government bonds. These so-called I-bonds pay competitive interest rates and increase in value when the CPI rises. These bonds can be held for up to 30 years. Suppose you purchased an I-bond for $10,000 and held it for 11 years, at which time you received $20,000 for the bond. Inflation has averaged 3% per year during this 11-year period. What real annual rate of return did you earn on your inflation-adjusted I-bond? Is it really competitive?ABC Corporation wishes to raise money by selling a 90-day promissory note in the short-term money markets. The note promises to pay the holder $17,000,000 at maturity. If yields on similar risk notes are currently 2.8% p.a., how much money will ABC Corporation receive for the note? If the purchaser of the note holds it until maturity, what is the total amount of interest they will earn? For the purchaser in 2), what will be the return on investment (ignoring taxes)? Need help answering all these please!