Question: A bank issues a 100 000 fixed rate 30 year mortgage with a nominal
A bank issues a $100,000 fixed-rate 30-year mortgage with a nominal annual rate of 4.5%. If the required rate drops to 4.0% immediately after the mortgage is issued, what is the impact on the value of the mortgage? Assume the bank hedged the position with a short position in two 10-year T-bond futures. The original price was 64 12/32 and expired at 67 16/32 on a $100,000 face value contract. What was the gain on the futures? What is the total impact on the bank?
Relevant QuestionsWhy do managers of financial institutions care so much about the activities of the Federal Reserve System?Assume you just deposited $1,000 into a bank account. The current real interest rate is 2%, and inflation is expected to be 6% over the next year. What nominal rate would you require from the bank over the next year? How ...An important way in which the Federal Reserve decreases the money supply is by selling bonds to the public. Using a supply-and-demand analysis for bonds, show what effect this action has on interest rates.A bank customer will be going to London in June to purchase ₤100,000 in new inventory. The current spot and futures exchange rates are as follows: Exchange Rates (Dollars/Pound)Period RateSpot ............ 1.5342March ...A swap agreement calls for Durbin Industries to pay interest annually based on a rate of 1.5% over the one-year T-bill rate, currently 6%. In return, Durbin receives interest at a rate of 6% on a fixed-rate basis. The ...
Post your question