1.

The time value of money (TVM) given our basic structural equation, we can solve for any missing single variable. The most common applications: - Solve for the interest rate - Compute payment to accumulate a future - Compute payment to amortize a loan. 2. The internal rate of return integrates the concepts of compounding and present of value. It is used: It represents a way of measuring a return on investment over the entire investment period, expressed as a compound rate of interest. It relates to the concept of compound interest: It tells the investor what compound interest rate the return on an investment being considered is equivalent to. 3. The mortgage lenders establish interest rate through competition, an expected inflations premium is said to be part of the interest rate at a give point in time can only reflect the market consensus of what these factors are expected to be. To be competitive, a lender can only charge an interest rate that reflect what the market expects inflation to be even if the expects inflation to more. 4. The mortgage loan is make to Mr.Jones at 10 percent interest for 2o year. MA CPM loan reduce the principal balance more slowly, as a result, if Mr.Jones chooses a CPM, he will pay the greater amount of interest over the life of the loan. A CPM may have a lower interest rate. The initial monthly payments for the CPM are considerably less than those of a CPM, and borrowers are more apt to repay the loan. If an economy were experiencing real economic growth with relatively stable prices, increases in income and property value would reduce borrower default risk associated with CPM loan. Additionally, lenders receive a greater portion of their (interest earned) early with a CPM. By decreasing default risk and the effect of default, a CPM may have lower rate interest of interest than a CAM. 5. The inflationary expectations influence interest rates on mortgage is the most lending institutions had been making constant payment mortgage loans with relatively long maturities. Increasing interest rates prompted lenders to change the mortgage instruments to now make more mortgages with adjustable interest rate features that will allow adjustment in both interest rates and payment so that the yields on mortgage assets will change in relation to the cost of deposits. 6. The difference between interest rate risk and default risk: Interest rate risk is the risk that the interest rate will change at some time during the life of the loan. Default risk is the risk to the lender that the borrower will not carry out the full trams of the loan agreement. The fact that ARMs shift all or part of the interest rate risk to the borrower, the risk of default will increase to the lender, thereby reducing some of the benefit gained from shifting interest rate risk to borrowers. 8. The incremental cost of borrowing funds is a measure of what is really cost to obtain additional funds by getting a loan with a higher loan-to-value ratio that has higher interest rate. The contract rate on the loan with the higher loan-to-value ratio does not take into consideration the fact that this higher rate must be paid on the entire loan-not just the additional funds borrowed.

Thus, the borrower should consider the incremental cost of the additional funds to know what it is really costing to borrow the additional funds. 10. The differences between the cost and the sales comparison approaches to appraising property: In market approach, the appraiser estimates the value of a property by comparing the selling prices of properties similar to, and near, the property being appraised. Because no two properties are exactly alike, the values of similar properties are adjusted by the appraiser for differences. In cost approach, the appraiser established a value for the site on which the improvement is located, then determines the cost of reproducing the improvement and adds the two. After the costs of the improvement and land value are added, the appraiser deducts an amount for any depreciation that improvement has suffered since they were constructed.