Problem 9 [15 points] 1. [5 points] In practice, one of the most important factors to control for credit risk is loan-to-value (LTV) ratio. Is this a good practice? Why? 2. [5 points] Bian, Lin and Liu (2018b) derive the following LTV bias for the Interest-Only (10) mortgage: Theorem 5. The LTV bias of IO mortgages can be calculated as follows: LTV bias = LTV price-based x | 1 1-8Bgm (1-EX-1 (1-7--N) LTVprice-based 1-B Bgn Describe what 1-0 Bgm 1-03 i. r. and LTV price-based stand for. 3. [5 points] In a depressing market with extremely high time-on-market for real estate sellers, why are transaction prices noisy? Problem 9 [15 points] 1. [5 points] In practice, one of the most important factors to control for credit risk is loan-to-value (LTV) ratio. Is this a good practice? Why? 2. [5 points] Bian, Lin and Liu (2018b) derive the following LTV bias for the Interest-Only (10) mortgage: Theorem 5. The LTV bias of IO mortgages can be calculated as follows: LTV bias = LTV price-based x | 1 1-8Bgm (1-EX-1 (1-7--N) LTVprice-based 1-B Bgn Describe what 1-0 Bgm 1-03 i. r. and LTV price-based stand for. 3. [5 points] In a depressing market with extremely high time-on-market for real estate sellers, why are transaction prices noisy