Question 2: Structured Product (20 gor'nts) BOWEN Limited is a real estate developer has a real estate development project valued at $9 billion. Today, BOWEN borrows from NOPAY BANK a 30year, $6.5 billion fixedrate mortgage at 9%p.a. requiring monthly mortgage payments. Since the mortgage interest rate of 9% is set below market, Nopay Bank requires profit sharing of onethird of the property value appreciation at the end of year 10. BOWEN will pay Nopay Bank onethird of the value appreciation of the project either at the end of year 10 or when the property sells, whichever occurs first. For example, suppose the property value increases by $6 billion over the next 10 years. At the end of year 10, BOWEN will pay the bank 1/3 of the $6 billion appreciation ($2 billion). On the other hand, there is no profit sharing if the real estate value drops below $9 billion at the end of year 10. Suppose the annualized riskfree rate of interest is 5% and the volatility of the real estate price is 40%. (a) Determine the fair market value of the mortgage today. [10 points) (b) Determine the oneyear 95% DeltaGamma 319.13. for this mortgage. (5 points) (c) Is the onethird profit sharing charged by NOPAY BANK a fair deal to BOWEN Ltd? Briefly explain. (5 points)