How much is the previous mortgage worth in the secondary market if the prevailing YTM in that market is 7.75%? Assume the loan is held to maturity.)

Question

Quizplus · Accepted Answer

To determine the value of the previous mortgage in the secondary market, given the prevailing yield to maturity (YTM) of 7.75%, we would typically use the present value formula for bonds or loans. This involves discounting the future cash flows (both the periodic interest payments and the principal repayment at maturity) back to the present using the prevailing YTM as the discount rate. Without the specific details of the mortgage (such as the principal amount, interest rate, term, and payment frequency), it's not possible to perform the exact calculation here. However, the correct answer is provided as $81,510, which suggests that when these cash flows are discounted at a 7.75% YTM, the present value of the mortgage is $81,510.

How Much Is the Previous Mortgage Worth in the Secondary