Question: Problem 2 [10 points] Suppose that you bought a house in Los Angeles, California in 2006Q1 and the house price was $600,000. Your LTV is

Problem 2 [10 points]

Suppose that you bought a house in Los Angeles, California in 2006Q1 and the house price was $600,000. Your LTV is 95%, so you borrow a fixed rate mortgage (FRM) of $570,000. The loan term is 30 years with interest rate 6% and monthly payments. Assuming the house price dropped 35% in Los Angeles during the period of 2006Q1 to 2009Q1.

1. What is the value of your house at the end of 2009Q1?

2. What is your loan balance at the end of 2009Q1 (36 months later)?

3. Which is the better choice from economic point of view and why?

a. Keep the house and continue to pay mortgage every monthb. Default and walk away

Fixed

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

Problem 2 [10 points) Suppose that you bought a house in Los Angeles, California in 2006Q1 and the house price was $600,000. Your LTV is 95%, so you borrow a fixed rate mortgage (FRM) of $570,000....

Q:

Problem 2 [ 2 0 points ] Suppose that you bought a house in Los Angeles, California in 2 0 0 6 Q 1 and the house price was $ 6 0 0 , 0 0 0 . Your LTV is 9 5 % , so you borrow a fixed rate mortgage (...

Q:

PROBLEM: Suppose that you bought a house in Los Angeles, California in 2006Q1 and the house price was $600,000. Your LTV is 95%, so you borrow a fixed rate mortgage (FRM) of $570,000. The loan term...

Q:

Suppose that you bought a house in Los Angeles, California in 2006Q1 and the house price was $600,000. Your LTV is 95%, so you borrow a fixed rate mortgage (FRM) of $570,000. The loan term is 30...

Q:

Suppose that you bought a house in Los Angeles, California in 2006Q1 and the house price was $600,000. Your LTV is 95%, so you borrow a fixed rate mortgage (FRM) of $570,000. The loan term is 30...

Q:

Suppose that you bought a house in Los Angeles, California in 2006Q1 and the house price was $600,000. Your LTV is 95%, so you borrow a fixed rate mortgage (FRM) of $570,000. The loan term is 30...

Q:

Suppose that you bought a house in Los Angeles, California in 2 0 0 6 Q 1 and the house price was $ 6 0 0 , 0 0 0 . Your LTV is 9 5 % , so you borrow a fixed rate mortgage ( FRM ) of $ 5 7 0 , 0 0 0...

Q:

Suppose that you bought a house in Los Angeles, California in 2006Q1 and the house price was $600,000. Your LTV is 95%, so you borrow a fixed rate mortgage (FRM) of $570,000. The loan term is 30...

Q:

Suppose that you bought a house in Los Angeles, California in 2 0 0 6 Q 1 and the house price was $ 6 0 0 , 0 0 0 . Your LTV is 9 5 % , so you borrow a fixed rate mortgage ( FRM ) of $ 5 7 0 , 0 0 0...

Q:

Suppose that you bought a house in Los Angeles, California in 2006Q1 and the house price was $600,000. Your LTV is 95%, so you borrow a fixed rate mortgage (FRM) of $570,000. The loan term is 30...

Q:

Mr. & Mrs. Very Poor, are penniless with a big dream to open their flower shop. They retain your services pro bono (for free) to advise them how to form their business. They are confident that their...

Q:

Define an appropriate marketing research problem corresponding to the management decision problem you identified in question 2. In question 2 discuss the role of marketing research in helping Intel...

Q:

A corporation must file a Form 1 0 4 0 every year, even if it has no taxable income for the year.

Q:

The manager of a snack section of a grocery superstore has just learned that the department store has 70 pounds of mayonnaise approaching expiration date and must be used. In order to use up the...

Q:

Shr owns all the shares of Tar. Her basis in the Tar stock is $15, and her holding period is 2 years. Tar owns one asset, land with a fair market value of $100 in which Tars basis is $35. The land...

Q:

Ming Company was organized on April 1. The company prepares quarterly financial statements. The adjusted trial balance amounts at June 30 are shown below. Ming Company was organized on April 1. The...

Q:

2) 3) Write a program named Guess_A_Number that plays a game in which the program picks a secret number and the user tries to guess it. 1) The program first asks the user to enter the maximum value...

Q:

How would you define and measure customer value to Henkel? Should it define value on the individual level or on the segment level? What is the look and feel of strategic CRM in the FMCG environment?...

Q:

Bass Pro Shops offers a vast array of products for the wide range of outdoor enthusiasts who visit its stores. Dividing its market into identifiable segments is crucial to the success of the company....

Q:

8. Give three examples of how the level of confidence one has in someone can affect a communication situation.

Q:

7. List examples from a communication situation with a foreign person in which you have used the sauna manoeuvre (described in this chapter), and examples where you have been subjected to the...

Q:

1. To provide an understanding of how trust is established in a communication context.