Understanding Fixed-Rate Mortgages: Amortization Schedule &

FNCE90047 Financial Markets and Instruments 2022 Semester 1 Week 8 Workshop Questions Question 1 Consider the following fixed-rate, interest-principal mortgage: maturity = 3 years, amount borrowed = $100,000, annual mortgage rate = 10%, annual repayment. You borrowed from this mortgage today. Table A is the amortisation schedule for the mortgage. Please fill in the missing numbers. Table A: Amortization Schedule of an Interest-Principal Fixed-Rate Mortgage Mortgage loan: $100,000 Mortgage rate: 10.00% Annual payment: $?? Term of loan: 3 years Year Beginning MortgageBalanceYearlyInterestScheduled PrincipalRepaymentEnding Mortgage Balance 1???????? 2???????? 3???????? Question 2 Explain why, in a fixed-rate mortgage, the amount of the mortgage payment applied to interest declines over time, while the amount applied to the repayment of principal increases. Question 3 How does a CMO alter the cashflow from mortgages so as to shift the prepayment risk across various tranches?