The Bull bank has a $100,000 30 year loan that was made 6 months ago to a homeowner who is making monthly payments to yield an interest rate of 7% compounded monthly. It would like to sell the loan to increase its overall liquidity.
a. What is the current balance on the loan?
b. What would be the value of this loan to a potential buyer if it was guaranteed to remain outstanding for the entire holding period, assuming the buyer’s RRR was 6% compounded monthly?