A mortgage of C = 100,000 is lent at present time (t = 0). Interest is...
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A mortgage of C = £100,000 is lent at present time (t = 0). Interest is repaid continuously at a force of interest 6. The mortgage is interest-only, which means no capital is repaid during the duration of the mortgage; however, there is a time T > 0 when the mortgage contract ends and the capital C is returned to the lender. i. State the present value of all interest being paid between time 0 and time T as an integral. ii. Show that the present value of all interest of part i. is equal to £100, 000 (1-U(T)), where v(T) denotes the discounted present value of £1 due at time T. A mortgage of C = £100,000 is lent at present time (t = 0). Interest is repaid continuously at a force of interest 6. The mortgage is interest-only, which means no capital is repaid during the duration of the mortgage; however, there is a time T > 0 when the mortgage contract ends and the capital C is returned to the lender. i. State the present value of all interest being paid between time 0 and time T as an integral. ii. Show that the present value of all interest of part i. is equal to £100, 000 (1-U(T)), where v(T) denotes the discounted present value of £1 due at time T.
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SOLUTION i The present value of all interest being paid between time 0 and time T can be calculated ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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