1. Suppose you have a 5% risk premium is reasonable. If your required rate of return is 8% and the real rate is 1%, what is your expectation of the risk-free rate?
2. Compute the face value of a 30 years fixed rate mortgage with a monthly payment of 1200, assuming a nominal interest rate of 6%. Compute the face value if the interest rate is now 7%. what is the difference in maximum house price if both mortgages requires 5% down?