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In: Accounting

Purchase of a new home John and Jane had planned to save $60 000 dollars over...

Purchase of a new home

John and Jane had planned to save $60 000 dollars over the next five years as a down payment on a house. Jane assured John that if they contributed $1000 each month to a savings account that pays an annual rate of interest of 2.5% compounded monthly that they would have enough money to put a down payment of $60 000 on their new house. Wanting their daughter to have a house, Jane’s parents (The Henrys) have offered to lend John and Jane $65 000, which they have suggested (perhaps naively) John and Jane pay back by contributing to a savings account in the Henrys’ name as per Jane’s original savings plan. John’s worried this is not fair to his in-laws. Is he correct? If so, devise a fair repayment plan that would see the Henrys repaid at a rate of 2.5% compounded monthly over the 5 years.

Solutions

Expert Solution

1. $1,153.58

2. Doe should accept 5-year fixed rate monthly mortgage plan in order to pay principle as quickly as possible.

Explanation:

Excel sheet used to solve the question :

Formula sheet :

ekkarill92 answered 2 years ago
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