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)

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