1.Ann is looking for a fully amortizing 30-year Fixed Rate Mortgage with monthly payments for $1,250,000.

Mortgage A has a 4.38% interest rate and requires Ann to pay 1.5 points upfront.

Assuming Ann makes payments for 30 years, what is Anns IRR from mortgage A?

Note: IRR is always annualized. If youve found a monthly rate, multiply by 12. In this case, two digits for a monthly rate is not enough to avoid rounding errors in the annual rate so either keep at least three digits or multiply right away w/o writing down the rounded number (e.g. fin calc shows only 2 digits but keeps more in memory).

2. Ann is looking for a fully amortizing 30-year Fixed Rate Mortgage with monthly payments for $1,250,000.

Mortgage A has a 4.38% interest rate and requires Ann to pay 1.5 points upfront.

Assuming Ann makes payments for 2 years, then immediately pays the remaining balance, what is Anns IRR from mortgage A?

3.

Ann is looking for a fully amortizing 30-year Fixed Rate Mortgage with monthly payments for $1,250,000.

Mortgage A has a 4.38% interest rate and requires Ann to pay 1.5 points upfront.

Mortgage B does not require to pay any fees upfront.

Assuming Ann plans to make payments for 2 years and then immediately pay the remaining balance, what should be the interest rate on mortgage B to make Ann indifferent between these two mortgages? Hint: Ann wants the mortgage with the lowest IRR, so she is indifferent if IRRs are the same.