Question

Mr Grants wishes to purchase an apartment in new Kasama, the high cost residential area of Lusaka. The apartment is situated in a tree lined avenue. the purchase price with costs is K710,000.00 and he is able to obtain a 100% loan at an interest rate of 6% compounded monthly . the term of the loan is 20 years. the central bank has released preliminary data that the property values are expected to rise at the rate of 9% per year (0.75% per month). Mr grant intends to rent out the property after costs at a rate of K4,000 per month for the first year. Interest and rent are payable at the beginning of each year

Required

a) What is the expected value of the apartment in 20 years time

b) What is the beginning mortgage loan repayment at the beginning of each month

c) what is the next amount that Mr Grant has to pay in each month

Answer 1

	a)	Expected Value after 20 Years
	Rate	Expected rate of rise per month	0.75%
	Nper	Number of months=20*12	240
	Pv	Present Value of the apartment	$710,000
	FV	Expected Value in 20 years time	$4,266,498	(Using FV function of excel with Rate=0.75%, Nper=240,Pv=-710000)
	b)	Beginning mortgage loan payment
	Rate	Loan interest per month=(6/12)%=	0.50%
	Nper	Number of years of mortgage =20*12	240
	Pv	Loan amount	$710,000
	Type	Beginning of month payment	1
	PMT	Mortgage loan repayment each month	$5,061.35	(Using PMT function of excel with Rate=0.50%, Nper=240,Pv=-710000, Type=1)
	A	Monthly Rent in first year	$4,000
	PMT-A	Beginning mortgage loan payment	$1,061.35
		Next amount that Mr Grant has to pay in each month	$5,061.35