Question

QUESTION 11

1. Which of the following mortgages will have the largest monthly payment?

   	A.	Fully amortizing 25 year FRM, annual i = 4%, mortgage amount $200,000
   	B.	Fully amortizing 30 year FRM, annual i=2%, mortgage amount $200,000
   	C.	Fully amortizing 30 year FRM, annual i = 3%, mortgage amount $200,000
   	D.	Fully amortizing 30 year FRM, annual i=4%, mortgage amount $200,000
   	E.	30 year FRM, annual i=3%, mortgage amount $200,000 with a balloon payment of $20,000 at the end of the loan

3 points   

QUESTION 12

1. A 5/1 Hybrid ARM is originated with the following characteristics: $100,000 borrowed, 30 year, fully amortizing, initial rate 4%, rate at reset date is tied to 10 year Treasury rate with a margin of 2%. At the first reset date 10 year Treasury rate is 5%. What is the monthly payment during the third year or this loan?

   	A.	$639.26
   	B.	$660.29
   	C.	$297.22
   	D.	$477.42
   	E.	$523.51

Answer 1

11)

General Rules:

Lower the Duration, Higher the Installment

Higher the Interest Rate, Higher the Installment

If there is Balloon Payment, a lumpsum amount will be paid at one particular time, this will lead to reduced balance for monthly installment and therefore, reduced Installment

Accordingly,

Option E will NOT have largest payment.

Out of B, C & D, D will have Highest payment, as it has highest Interest Rate and everything else is same.

Out of A & D, A will have Higher payment, as it has Lower Duration and everything else is same.

Therefore, Option (A) will have Highest Monthly Payment.

NOTE: As per GUIDELINES, we are supposed to answer ONLY 1 QUESTION.