What Is the Present Value at a 10% Discount Rate

question 22

Short Answer

What is the present value at a 10% discount rate expected return) of a non-recourse mortgage that has a single payment remaining, due one year from now, in the amount of $1,000,000. Assume that the borrower will threaten a "strategic default" if it is in his interests to do so, and that the borrower has "full bargaining power" can make the lender pay all the foreclosure 3rd party costs). The foreclosure costs are $200,000, and the possible future value scenarios one year from now for the property securing the mortgage with probabilities) are:
i) $1,500,000 80% probability)
ii) $1,150,000 10% probability)
iii) $900,000 10% probability)

Identify and describe the standard normal distribution and its properties.

Understand the concept of a random variable being "standardized".

Differentiate between key concepts related to probability distributions (mean, median, mode, variance, standard deviation).

Understand the concept of pH and its scale, including the role of hydrogen (H+) and hydroxide (OH-) ions in determining acidity or basicity.

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Definitions:

Demand Stimulus

Economic policies or measures aimed at increasing consumer demand to drive economic growth.

Budget Deficits

The situation where a government's expenditures exceed its revenues over a particular accounting period, leading to borrowing or debt accumulation.

Regulatory Policies

Rules or directives formulated by a governing body to regulate activities within specific areas or industries for public benefit.

Low Down-payment Loans

Loan types that require a smaller initial payment from the borrower, often used in the context of home mortgages.