Fixed rate mortgage loan. Initial loan amount is $200,000. Semi-annually compounding rate is 5%. Amortization period 300 months, term of loan is 60 months. If this loan terminates after 30 months, at which point the semi-annually compounded rate for a 30 month loan is 2.6%, Suppose now that you are an investor in this loan. Your discount rate is .0015 per month. If you believe that the loan will definitely prepay after the 30th payment (30 months from today), but all of a sudden, prepayment penalties are banned, so there will be no prepayment penalty at the end of the loan, how much would you pay for the rights to the cashflows to the lender (how much would you pay to buy this loan from the lender)?

To calculate the price you would pay for the rights to the cashflows to the lender, we need to discount the future cashflows back to the present value using your discount rate of 0.0015 per month. The first step is to calculate the monthly mortgage payment for the 30-month loan with a semi-annually compounded rate of 2.6%. We can use the following formula: Monthly payment = (Loan amount * (Interest rate / 12)) / (1 - (1 + (Interest rate / 12))^(-Amortization period in months))) Plugging in the values, we get: Monthly payment = ($200,000 * (0.026 / 12)) / (1 - (1 + (0.026 / 12))^(-30)) = $8,131.56 Next, we need to calculate the present value of the future cashflows. We can use the following formula: Present value = Future value / (1 + Discount rate)^(Time periods) We can discount the cashflows for the remaining 12 months of the loan, since you believe that the loan will definitely prepay after the 30th payment. Present value = $8,131.56 * (1 / (1 + 0.0015)^12) = $7,527.46 Therefore, you would be willing to pay $7,527.46 for the rights to the cashflows to the lender.