<p> HW 4 FIN/RES 9776 Real Estate Finance Professor Rui Yao</p><p>Due date: 04/14/11 before the start of second midterm exam</p><p>Q1. For the same loan amount as in HW3 also consider a 5/1 hybrid ARM:</p><p>5 Year Adjustable Rate Rate Points Rebate APR Payment Closing Fees Total Cost Apply 5.625% 1.750% $0.00 5.665% $2,302.63 $19,534.00</p><p>5.750% 1.375% $0.00 5.679% $2,334.29 $18,034.00</p><p>5.875% 1.000% $0.00 5.693% $2,366.15 $16,534.00</p><p>6.000% 0.750% $0.00 5.718% $2,398.20 $15,534.00</p><p>6.125% 0.500% $0.00 5.744% $2,430.44 $14,534.00</p><p>6.250% 0.250% $0.00 5.770% $2,462.87 $13,534.00</p><p>6.375% 0.000% $0.00 5.796% $2,495.48 $12,534.00</p><p>Check out the loan with the following term:</p><p>Rate: 5.875% Point: 1.00% Rebate $0.00 Reported APR 5.693% Index: 1-year LIBOR Margin: 2.25% Initial adjustment cap 5% Annual Cap: 2.00% Lifetime Cap: 5% Amortization term: 30 year</p><p>Closing Fees:</p><p>Charter One Mortgage Fees Discount Points $4,000.00 Application Fee $350.00 Processing Fee $365.00 Underwriting Fee $300.00 Total Charter One Mortgage Fees $5,015.00 Third Party Fees Tax Service Fee $67.00 Flood Determination $7.00 Settlement or Closing Fee $700.00 Title Insurance $3,475.00 Total Third Party Fees $4,249.00</p><p>Taxes and other Unavoidable Fees Recording Fee $100.00 Local Mortgage Tax $7,170.00 Total Taxes and other Unavoidable Fees $7,270.00</p><p>Closing Cost Credit $0.00</p><p>Total Closing Fees $16,534.00</p><p> a. Assume that there is no payment cap, what is the APR, under a one-year LIBOR rate of 3.17%? Compare your number with reported APR. b. Assuming your tenure of 5 years, what is your effective cost? (note: use the same assumption about what should be included in the effective cost calculation as in HW3) c. What is the lender’s expected yield when the tenure is 5 years? (note: lender does not receive third party fees or taxes) d. If you end up staying for 7 years, and the LIBOR index goes up to 6% and 7% for year 6, and 7, what is the ex post effective cost that you paid? e. What is the lender’s realized yield when the tenure is 7 years and the LIBOR index goes up to 6% and 7% for year 6, and 7? </p>