Nt1330 Unit 1 Case Study

Improved Essays
As discussed SIMP is the first highly modifiable software based amortization model. The demo we are about to review was optimized with to consider borrowers will either sell or refinance their homes within 10 years. In this example we have optimized SIMP to reduce principal at approximately the same pace as the 15 year show them please refer to column X . 15 year mortgage reduces the principal balance of a loan by 10 % in just over 2 years, now lets take a look at SIMP please go to column K as you can see it takes SIMP a few months more. There is one major caveat of the 15 mortgage I would like to go over , please refer to cell B10 as you can see SIMP monthly payment is $161 less than the 15 year, thus SIMP borrowers will have …show more content…
Based on a 35% tax bracket the after tax revenue stream of SIMP is $509 please refer to cell J1 VS the 30-Year which is $424 please refer to cell T12 SIMP’s the after tax revenue stream is $72 a month higher, this gives lenders $72 a month more revenue over 10 years to reinvest due to the fact SIMP borrowers monthly payments are composed of $100% principal oppose to 90% interest, in the case of the 30-year model.

How do we quantify how much more yield SIMP would receive due to having $72 more dollars each month to reinvest over 10 years? Well one way would be to SIMPly add this amount to our present revenue stream. Please refer to cell J3 SIMP’s effective 10 year yield average would be 6.93%. SIMP produces .93 basis points higher yield at half the risk of a 30 year mortgage. Given SIMP plenty of cushion against yield spread volatility.

So how does SIMP benefit the borrower? Please view cell K8. In 10 years SIMP delivers $25,414 more equity, twice the amount of equity it would have received under the 30- year model and cut the term of the loan from 30 to 20

Related Documents

  • Improved Essays

    The cost to purchase and install a new machine is N15,000. The installation of machine can reduce annual labor cost by N4,200. The life of the machine is 15 years. The salvage value of the machine after fifteen years will be zero. The required rate of return of Smart Manufacturing Company is 25%.…

    • 1113 Words
    • 5 Pages
    Improved Essays
  • Improved Essays

    Orion Corporation Case

    • 2651 Words
    • 11 Pages

    Due to the increased efficiency of the new machine, estimated annual cash savings of $300,000 would be generated. Treads Corporation uses a discount rate of 12%. 40. The net present value of the project is closest to: A) $171,000. B) $136,400.…

    • 2651 Words
    • 11 Pages
    Improved Essays
  • Improved Essays

    Why Is 401k Important

    • 754 Words
    • 4 Pages

    I believe the best way to save for retirement is through the 401k program. It is beneficial to invest early in a 401 k retirement plan because your money compounds and increases over time, employers match a percentage of your contribution and between 3-6 percent of your gross wages, and you receive deferred tax. It is imperative that one starts saving immediately after working because of the compounding effect of the 401 k plan. The average annual return for investments is about eight percent, which means that every seven years your money would double. According to Practicalmoneyskills.com, assuming 5,000 dollars is saved for ten years, “If you started saving at age 25, stopping at age 35, when you retire at 65 your account would be worth about $787,000.…

    • 754 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    To compensate investors for the reinvestment risk and unknown final term of investment, callable bonds generally offer higher yields. Investors in callable bonds must consider two yields — the yield-to-call (YTC) and the yield-to-maturity (YTM) — when analyzing the return scenarios of callable bonds. A call schedule is determined at the time of issuance. An example An investor buy a bond with a face value of $1,000 and a coupon rate of 5%, so the annual interest payments are $50. The bond matures in 10 years, but the issuer can call the bond for face value ($1,000) in two years if they choose.…

    • 966 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    Millions of people and families would benefit from an increase in the minimum wage. Today the federal minimum wage is currently at $7.25, but should be at nearly $10, or better yet even higher. But the last time Congress voted to raise the wage to its current rate of $7.25 an hour was seven years ago. Since then, the cost of life 's essentials have shot up. Groceries cost 20% more, a gallon of gas costs 25%more, and average tuition at a community college increased 44%.…

    • 770 Words
    • 4 Pages
    Improved Essays
  • Great Essays

    • The Net Loss After Tax was Rs. 17,171.99 million, compared to the net loss of Rs. 202.32 million in 2010/11. • Total Passenger Revenue increased by 20% to Rs. 72,620.39 million.…

    • 1055 Words
    • 5 Pages
    Great Essays
  • Superior Essays

    A 5/1 ARM simply means that for the first 5 years of the loan, the rate will be fixed. After that (in this example) the rate will increase by .25% annually for the remainder of the 30 year loan. With a starting interest rate of 3.5%, the monthly payments will be the same as with the fixed-rate mortgage, $1,023.82; however, after the first 5 years, payments will increase along with the interest rate. The highest monthly payment increases to $1,452.10 and the interest rate increases from 3.5% to 9.75% over the 30 year duration of the loan. The total amount of interest that will be paid to the lender is $223,932.93, and the total amount paid at the end of the 30 years is $451,932.93.…

    • 803 Words
    • 4 Pages
    Superior Essays
  • Great Essays

    On the reported sales front, according to Zacks (2016), there was a 3% increase in net sales to $10.71 billion for the five-week period ended April 3, 2016. Costco reported their 31-week period net sales of $68.96 billion, marking a 2% increase from $67.59 billion generated in the year-ago period (Zacks, 2016). Equally, examining Costco’s Return on Equity, the company has created a consistent return with its stockholder’s capital. Costco 10-year average ROE is 14.56%, but the most recent fiscal years of 2013, 2014 and 2015 have been 17.58%, 17.70%, and 20.74% respectively. As a result, Costco has experienced remarkable growth over the past 10 years from $60 billion in 2006 to $116 billion in 2015 (Strider, 2015).…

    • 1945 Words
    • 8 Pages
    Great Essays
  • Improved Essays

    $30,000 + $300 = $30,300 $30,300 – $10,000 = $20,300 New principal after payment and interest in $20,300 b) How much did you pay at the end of the loan overall? How does this differ from how much you would have paid overall had you not made a payment of $10,000 after 45 days? The total loan amount with interest was $30,250.75. By paying the $10000 45 days in advance I was able to save $49.25. If I did not pay any in advance I would of paid $30,300 total.…

    • 1103 Words
    • 5 Pages
    Improved Essays
  • Improved Essays

    A stock which pays a 20 $ dividend when the required rate of return is 10% and is expected to grow at a constant rate of 5% would be valued at 420$. This figure was obtained by taking 20$ multiplied by 1.05 to find the expected dividend at the end of the year which equals 21$ per share. 21$ per share was divided by 0.05 which is the required rate of return of 10% minus the growth rate of 5% to obtain a value of 420$ per share. In the first example with a 20$ dividend and 10% required rate of return the stock was valued at 200$ per share. If dividends are expected to grow at a steady rate of 5% the value of the stock increase to 440$.…

    • 984 Words
    • 4 Pages
    Improved Essays