1-

You plan to purchase a house for $115,000 using a 30-year mortgage obtained from your local bank. You will make a downpayment of 20% of the purchase price. You will not pay off the mortgage early.

Your bank offers you two options for the mortgage:

• Option 1: Mortgage rate of 9% and zero points
• Option 2: Mortgage rate of 8.85% and 2 points

A- What is the monthly payment on mortgage option 1?

B- What is the effective annual yield on mortgage 1? Please express in %s.

C- What is the payment on mortgage option 2?

D- What is the dollar value of the points for mortgage 2?

E- What is the effective annual yield on mortgage 2? Please express in %s.

F- Which mortgage is a better option for you assuming that you will not prepay the mortgage?

2- If a bank invested $50 million in a two-year asset paying 10% interest per year and simultaneously issued a $50 million one-year liability paying 8% interest per year, what would be the impact on the bank's net interest income if, at the end of the first year, all interest rates increased by 1%?

Please express your answer in dollars.