Part A- 600-800 words
Describe the differences between perpetuities and annuities. Give examples of both types of products. Then, browse the following Web sites:
What information on the first Web site could be the most applicable to a consumer or investor?
What information on the second Web site could be the most applicable to a consumer or investor?
Find 1 example of a perpetuity. How is the perpetuity structured? How can you tell that this is an annuity within the product? Explain your answer.
Find 1 example of an annuity. How is the annuity structured? How can you tell that this is a perpetuity within the product? Explain your answer.
Why would an investor prefer one product over the other? Explain your answer.
How does the time value of money impact the eventual returns of both products?
If the investor had a short life expectancy, which investment would he or she prefer?
If the investor had a long life expectancy, which investment would he or she prefer?
Part B- 800-1000 words
Find 5 different online mortgage lenders, such as this one.
From these 5 lenders, find the following rates, assuming the mortgage payments are made monthly:
10-year (if available) for fixed-rate mortgage
15-year (if available) for fixed-rate mortgage
30-year for fixed-rate mortgage
Convert these rates into effective annual rates (EARs).
Discuss which rate is actually the cheapest rate.
What are 2 things about the sample Web site given above that could be applicable to a consumer or investor?
Present the rates in a table. List the quoted rate and EAR rate, the lender, and the maturity of the loan. Show your work for each calculation.
What is 1 mistake people make when calculating their mortgage payments? Explain your answer.
Based solely on the EAR, which rate is the cheapest? Does this make sense?
Why do the different lenders have different rates?
Is the difference in rates going to make a huge impact on the cost to the homebuyer? Explain your answer.