1. Your sister just obtained (on August 31st) a twenty-five year, $320,000 mortgage at a 3.9% APR ( Annual Percentage Rate). She wants your help in determining the following amounts relating to this mortgage:
a. The amount of the monthly payment;
b. The amount of interest she can deduct on her 2017 income tax return (September through December);
c. The amount of interest that she can deduct on her 2018 income tax return (January through December); and
d. The outstanding balance of the mortgage on December 31, 2018.
2. Economists predict the next year of US stock market. The probability of each scenario and the predicted return of each scenario is given. Please calculate the Expected Return and standard deviation.
Probability Return of the Market
Boom 10% 10%
Normal 40% 5%
Bad 40% 0%
Worse 10% -10%