Question

It is 2025, and you have established yourself as a young up-and-comer in your field. As such you and your significant other have decided to put down roots and buy a house together.

In preparing to buy your home you have decided that the maximum monthly payment you would be willing/able to make is $2,000. You have about $80,000 to put towards a down payment.

Assume that you could get an interest rate of 4.75% on a 15 year mortgage or 5.25% on a 30 year mortgage. In order to get these rates you must make a 20% down payment on the value of the home, financing the remainder.

Use the amortization table you have created to determine what your option is in regards to financing your home.

6. What is the price of the home you can afford, given the above parameters?

7. How much interest would you pay over the life of the loan, given the above parameters?

8. If you made an additional payment of $200 each month, how early would you pay off either loan?

9. If you made an additional payment of $250 each month, how much less interest would you pay with either loan?

Answer 1

To solve this question just input those variables which are to be used in logistic regression, as the question talks about using two variables only that is total loans and leases to total assets & total expenses/ total assets, so we will not input total cap/assets as an input variable in our excel, here we go

As one can see, we have taken only two variables , total exp/assets and total lns & leases/ assets in calculation, follwing steps have been followed to construct the above table

1. Assume logit= b0+ b1* independent variable1+ b2* independent variable 2 , take values of b0=0.1, b1=0.1, b2=0.1, note that these values of b0, b1 and b2 are just taken for calculation, one could assume any values here for bo , b1 and b2

2. Calculate exponential of logit in the next column by using exp (value in previous column)

3. Calculate probability by using formula, probability= exp (logit)/ { 1+ exp(logit)} in the next column

4. In next column, calculate log likelihood by using formula : financial condition value (i.e. 1 or 0) * LN( probability calculated in previous column) + (1- financial condition value)* LN( 1- probability calculated in previous column)

5. take the total of the column values of log likelihood

6. use solver function in excel to change this total by putting max value of 0 and changing the variable cells containing assumed values of b0, b1 and b2 , by clicking on solve, you will get actual values of b0, b1 and b2

which comes out to be b0=-14.72, b1=89.83, b2= 8.37

therefore you will get logit as

-14.72+ 89.83* Total exp/assets+8.37*Total lns & lsses/ assets

With values given in the question as total exp/ assets= 0.11 and total loans & leases/ assets= 0.6 , we get

logit as -14.72+ 89.83* 0.11+ 8.37*0.6= 0.1833

exp (logit) = 1.20

Probability= 0.546

Loglikelihood= 1*LN(0.546)+0*LN(1-0.546)= LN(0.546)= -0.605