Larry Davis borrows $78,000 at 11 percent interest toward the purchase of a home. His mortgage...

Larry Davis borrows $78,000 at 11 percent interest toward the purchase of a home. His mortgage is for 25 years. Use Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.

a. How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation. We will get a reasonably accurate answer.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

b. How much interest will he pay over the life of the loan? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

c. How much should he be willing to pay to get out of a 11 percent mortgage and into a 9 percent mortgage with 25 years remaining on the mortgage? Assume current interest rates are 9 percent. Carefully consider the time value of money. Disregard taxes. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Expert Solution

1.
=78000*11%/(1-1/1.11^25)=9261.73888021634

2.
=78000*11%/(1-1/1.11^25)*25-78000=153543.472005409

3.
=(78000*11%/(1-1/1.11^25)-78000*9%/(1-1/1.09^25))/9%*(1-1/1.09^25)=12974.1674311715

jeff jeffy answered 2 years ago

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