Note that if your private exposure (q) understands the bonus on the bargain gets 0. Following only the influenced debtors have a tendency to repay very early, if for example the ex article interest stays highest. But in possible out-of a bringing down interest most of the debtors have a tendency to pay back early. Men and women to have just who the main benefit from the offer stays b usually pay off very early or take up another type of borrowing during the less interest rate. Others, to possess whom the private risk keeps know might pay back very early. To them the brand new gain on the package would-be 0.

They reinvests the newest paid down mortgage in one interest rate since the fresh lending rates

In the model a risk premium exists only for the first credit and not for the second credit. If the debtor takes up the second credit at the low interest rate ( \(_<2l>)\) the interest rate cannot-by assumption-decline any more in future. Lees verder “step three.step three Research of your own signal from expectation problems to own premature installment”