Lab Section 02Lab Section 02 Collect some price data...

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Lab Section 02 Lab Section 02 Collect some price data Google: caseshillerindexsaintlouisFed andclickonthetoplink.Ifallgoeswellyoushouldlandinthe“FRED”databaseat theFederalReserveBankofSaintLouis,whichisanicerepositoryofmacroand financialeconomicsdata.ClickonDownloadanExcelspreadsheet. Usingthe“Geographies”menuontheleftside,findtheindexforthecityofPhoenix Createaworksheetwiththepriceindexinthiscity,fromJuly2002untilJuly2016. Bywhatpercentagedidhousepricesincreasefrom2002tothepeakofthehousing bubble?Bywhatpercentagedidhousepricedeclinefromthepeakofthebubbleto thesubsequenttrough?Bywhatpercentagedidhousepricesincrease/decrease overtheentiretimeperiod? NowdownlnoadthecaseShillerindexforyourfavoritecity.Isthepatternas pronouncedasforPhoenixAZ? Nowgotowww.zillow.comandfindonerecentlysoldsinglefamilyhouseyou’dlike inPhoenix(showapictureofthehouseonyourslides!).Trytopickahousethat soldmultipletimesduringthe2002-2016timeperiod.UsingtheCaseShillerhouse priceindexandthesellingpriceoftheproperty,generateanapproximatetime seriesforthepriceofthishouse,everymonthfromJuly2002toJuly2016.Compare theapproximatehousepriceserieswiththeactualtransactionpricesshownin Zillow.Howaccurateisyourapproximation?Whatcouldexplainthediscrepancies youobserve? Collect some interest rate data Google“fredsaintlouis”andclickon“categories”andthen“interestrates Clickon“TreasuryBills”:downloadmonthlydataon3monthTreasurybillforthe sametimeperiod. Nowgobackonepageandclickon“Mortgagerates”:downloadmonthlydataonthe 30-yearsconventionalmortgagerateforthesametimeperiod. Create an amortization table for a fixed rate mortgage SupposeyoubuythehouseinJuly2002.Youput35%down,andtakeonafixed rate,30-years,mortgage.Createtheamortizationtableforthismortgage,fromJuly 2002toJune2032.WhatisyouroutstandingbalanceinJune2016?Didthe amortizationpartofyourpaymentgoupordownovertime?Why?Whataboutthe interestpart?Why? NowitisJune2016andyouarethinkingaboutrefinancing,atthecurrentratefor theremaining16yearsoftheloan.Isitagoodidea?Createanamortizationtablefor thisnewloan.Whatwouldbeanestimateofthedollar(present)valueof refinancingyourloan? Create an amortization table for a floating rate mortgage Supposeyoubuythesamehouse,alsoputting35%down,butwithanadjustable rate30year,mortgage.Theinterestrateonthemortgageisre-seteverymonth, accordingtothefollowingformula: 3monthTreasurybillrate+3.5% Createanamortizationtableforthisfloatingratemortgage,fromJuly2002toJune 2016.Whichofthetwomortgagesperformedthebest?Couldahomebuyerhave anticipatedthisresultwhentakingonthefirstmortgageinJuly2002?Underwhat interestratescenariowouldyouhaveobtainedtheoppositeresult? Buying at another time SupposeyoubuythehouseinJuly2006.Themortgagecompanyoffersyoua mortgagewithahighloantovalueand“negativeamortization”.Youonlyhaveto putdown10%.Forthefirstyear,yourdonothavetomakeanypayment,butyour liabilitygrowsattheTreasuryBillrate+2%.Afterayear,yourmortgageis convertedtoaconventional29yearfixedratemortgage,attheprevailing30year rate+1%. Createanamortizationtableforthehouse.Createaplotshowingtheevolutionof themortgagebalanceandofthehouseprice.Whereinthegraphdoyouseethe effectof“negativeamortization”?Areyou“underwater”onyourmortgageatany pointintimebetweenJanuary2006andJune2016?