# Finance-technology which can transform an investment of \$I today into \$40 you can borrow at 331%

January 31, 2017

Question
Hi, i find these two questions very hard, can somebody help me with it?

The first one:

Your life span is two periods. You are endowed with \$500 today. You have a production

technology which can transform an investment of \$I today into \$40 you can borrow at 331% per annum and lend at 25% per annum.

3

(a) What is the maximum feasible consumption today?

(b) What is the maximum feasible consumption next year?

(c) What is the optimal consumption if U(C0, C1) = min(C0, C1)?

I next year. Also,

(d) What is the “Fisher Separation Theorem?” Is it valid under the assumption of different borrowing and lending rates?

The second one:

You obtain a \$200,000 mortgage loan from TD bank to buy a house. The mortgage has a 5-year fixed rate of 5%/year (using Canadian mortgage convention), and the amortization period of the mortgage is 20 years. (a) What is the monthly mortgage payment?
(b) How much do you owe the bank after the 60th monthly payment? 2

(c) For the 24th monthly payment, how much of it is for interest, and how much of it is for principal repayment?

(d) What is the present value of the interest portion of the first 60 payments?

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