Bankers at NE Savings are setting mortgage rates.  They first determine the interest rate for 30-year FRM to be 4.5% without any discount point, which is at the average level in the region. They then consider two choices for the FRM with discount points as below:

        Choice 1: 30-year FRM @ I = 3.50%, and 1 point.

        Choice 2: 30-year FRM @ I = 3.50%, and 2 points.

Q1. Calculate the expected yields of the two loans for year 1, 5, 15, and 30.

Q2. Which of the two loans would you advise them to offer to the market, and why?  

Answer rating: 100% (QA)

To calculate the expected yields of the two loans we need to take into account the interest rate the ... View the full answer