You Are Working As A Nancial Analyst In The Mortgage Lending Group At Cibc Your (1)
Need all parts answered with detailed solutions for final exam review.
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1. You are working as a ﬁnancial analyst in the mortgage lending group at CIBC. Your supervisor lurchaover to your desk and tells you that a CIBC client is interested in a ﬁxed—rate mortgage loan of a 25year maturity and an initial balance of $800, 000.00. He is agreeable to the 5.00% annual mortgagerate that CIBC would charge for such a mortgage loan to someone with his credit score, income andassets. The client is, however, also interested in comparing the payment patterns and discountedpayment costs to him, when this mortgage features the contrasting cases of interest only and constantpayment amortization schedules. Your supervisor expremes concern about both the market value ofthese alternative forms of the mortgage and also about the interest rate risk each such form poses to thebank. Given the current term structure of market interest rates, described to you below and given toyou numerically in Table 1, you supervisor is particularly interested in the gains or losses to the bank,for each form of this mortgage, under two alternative scenarios for term structure changes. Each suchscenario is also described below.1 He assigns you the following tasks:2