Question

In: Economics

1. (10 pts) You just bought a house for $400,000. You put 20% down and financed...

1. (10 pts) You just bought a house for $400,000. You put 20% down and financed the rest over 30 years at 6% nominal interest. Assuming equal monthly payments over the term of the loan, what are the monthly payments? What is the effective rate? (Chapter 4)

2. (10 pts) What would you need to invest today in an account that had a nominal rate of 8% compounded quarterly, if you wanted $12,000 in 4 years? What would be the investment required if the account compounded semi-annually? What is the effective rate of each investment? (Chapter 3)

(10 pts) Assume the following cash flows: (Chapter 4)

Assuming an 9% interest rate, what is the value of A required to make the present value of the cash flows equal to 0?

Solutions

Expert Solution

1. Price of house = $ 400,000

Down payment = 20%

Loan amount = 0.8 × $400,000 = $ 320,000

Interest rate = 6% compounded monthly

Effective monthly rate = 6/12 = 0.5% per month

Monthly installment = $ A

Monthly installment = $ 1,918.56

2. Let us assume we invest an amount = $ A

Interest rate = 8% compounded quarterly

Time = 4 years

FV = $ 12,000

Effective interest rate

Effective rate of interest = 8.2432% per year

So you are required to deposit $ 8,741.35 today.

Question number 3 i cannot solve because the cash flow diagram is missing.

Please contact if shaving any query will be bologe to you for your generous support. Your help mean a lot to me, please help. Thank you.

Rahul Sunny answered 1 week ago

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