Question

A.At the end of 7 years, your friend wants to have $10,234 saved for a down payment on a house. He expects to earn 9%—compounded annualy—on his investments over the next 7 years. How much would your friend have to put in his investment account each month to reach his goal?

B.A builder is offering $100,000 loans for his properties at 9 percent for 25 years. Monthly payments are based on current market rates of 9.5 percent and are to be fully amortized over 25 years. The property would normally sell for $110,000 without any special financing. At what price should the builder sell the properties to earn, in effect, the market rate of interest on the loan?

c.Luke Walkskyer wants to buy your mortgage. The original balance of your mortgage was $200,000 and was obtained five years ago with monthly payments at 12 percent interest. The loan was to be fully amortized over 20 years. What should Walkskyer pay if market rates are 11%?

D.The market value of a loan is:

		The future value of the remaining payments
		The loan balance times one minus the market rate
		The loan balance times one minus the original rate
		The present value of the remaining payments

Answer 1

	Target Savings (Future Value)	$10,234
	Annual interest rate	9%
	Number of Years	7
	Monthly interest=i
	(1+i)^12=1+0.09
	1+i=1.09^(1/12)=	1.00720732
	i=0.007207
	Monthly interest=	0.007207
	Number of months	84	(7*12)
	Amount of savings required per month	$89.08	(Using PMT function of excel with Rate=0.007207,Nper=84, FV=-10234