FIN 3715 Chapter : FIN 3715 Homework #2

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azuremammoth471

15 Mar 2019

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Homework 2: show all work if you want partial credit. Time lines are helpful: round to four decimal places, due: feb 13th before class starts, choose either alternative a or alternative b. You may feel free to answer both problem sets, but do not turn in both. Five years ago you deposited ,000 in a savings account with an interest of 5%, compounded annually. Now you want to use the money to purchase a house which is priced at ,000. If you do not have enough cash to pay for the house, you have to take out a loan. You need to make a 10% down payment and pay an additional 5% of the loan amount for closing costs. The mortgage rates offered by the bank are either 3% for 15 years or 4% for 30 years. Both mortgage rates are fixed rates and are compounded monthly.

Related Questions

Buying a House

2) After you've been working five years, you decide to buy a house. As a rule of thumb, your house payments should not exceed 25% of your gross pay. Based on your annual salary during your sixth year on the job $42, 543, what is the maximum amount you could afford in the house payments per year?

3) Calculate the maximum house payment you could afford per month?

4) Assume you will qualify for an 8%, 30-year conventional mortgage. How much could you borrow based on the maximum monthly payment you can afford? (8% compounded monthly)

5) Lenders often expect that you have 20% of the value of the house as a down payment. Assume that you will be able to make a 20% down payment. What is a total cost of the house you could afford? The total cost is equal to the mortgage plus the down payment. (HINT: Use algebra. You want to calculate 20% of the value of the house, not 20% of the amount you are financing.)

6)What is the amount you would pay for for this house over the 30-year mortgage with monthly payments? Don't forget to include the down paument. (In the words, how much total cash will you be paying for this house - not taking into account the time value of money?)

7) How large would your monthly payments be if you could qualify for a 2-year mortgage at 8% compounded monthly (for the same amount you could borrow based on your calculations in question 4)?

copperox813

1.) Suppose Oppenheimer Bank is offering a 30-year mortgage with an EAR of 6.800%. If you plan to borrow $150,000, what will be your monthly payment? (Note: Be careful not to round any intermediate steps less than six decimal places.) Your monthly payment will be $______

2.) You are looking to buy a car and you have been offered a loan with an APR of 6%, compounded monthly.

a. What is the true monthly rate of interest? 0.5%

b. What is the EAR?

3.) You have just sold your house for $1,000,000 in cash. Your mortgage was originally a 30-year mortgage with monthly payments and an initial balance of $800,000.The mortgage is currently exactly 18½ years old, and you have just made a payment. If the interest rate on the mortgage is 5.25% (APR), how much cash will you have from the sale once you pay off the mortgage? (Note: Be careful not to round any intermediate steps less than six decimal places.)

Cash that remains after payoff of mortgage is __________

4.) If the rate of inflation is 4.5%, what nominal interest rate is necessary for you to earn a 2.3% real interest rate on your investment? (Note: Be careful not to round any intermediate steps less than six decimal places.)

The nominal interest rate is ___%

5.) Use the table for the question(s) below.

Suppose the term structure of interest rates is shown below:

Term	1 year	2 years	3 years	5 years	10 years	20 years
Rate (EAR%)	5.00%	4.80%	4.60%	4.50%	4.25%	4.15%

What is the shape of the yield curve and what expectations are investors likely to have about future interest rates?

A. inverted; higher

B. inverted; lower

C. normal; higher

D. normal; lower

rosehippopotamus950

1) Our company is considering a project that will provide the following after tax cash flows to the firm: CF1 90,000 CF2 125,000 CF3 175,000 CF4 200,000 CF5 190,000 CF6 â 9 165,000 CF10 145,000 If we have a required return of 14% for this project, what is the value of the project to the company? If we had to pay 700,000 for the project today, should we purchase the project?

2) When you retire you will initially require an annual income of 125,000 per year. You anticipate living for 25 years during retirement with an 8% investment return. How much do you need in your pension plans to cover this need? How much will you have to invest monthly over the next 35 years to acquire that amount of money, if you can earn 13% on your investments?

3) I want to purchase a house in Florida. The current value is $350,000. I would like to put 25% down and make the purchase in 5 years. Houses in the area are appreciating at 6% per year. The forecasted mortgage rate at the time of purchase is 7.5% for 30 years. Future cost of the house? Down payment? Mortgage amount? Monthly payments to get down payment, if I can invest at 15%? Monthly payment of the mortgage? Copy and Paste Special the first 6 months of the amortization table from the worksheet. What is the reduction in principal in month 1? (3) If you made an additional payment per year (1/12 more per month or made biweekly pmts), How much interest would you save?

FIN 3715 Chapter : FIN 3715 Homework #2

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