Question

Suppose you are buying the first house for $500,000 with 20% down payment. You have arranged to finance the remaining amount with a 15-year, monthly payment, amortized mortgage at nominal annual rate of 3.6%. What is remaining balance after 10 years with 120 monthly payments?

1. $180,68.90

2. $79,777.39

3. $167,123.45

4. $157,881.37

Which of the following statements is/are INCORRECT?

1. Unlimited liability and limited life are two key advantages of the corporate form over other forms of busiess organizations.

2. Limited liability is an advantage of the corporate form of organization to its owners (stockholders).

3. When a stock’s intrinsic value is higher than its market price, then the stock is undervalued.

4. Sarbanes-Oxley Act (SOX) emphasizes that CEO and CFO are not required to certify annual report because the firm has already hired the accounting firm to certify all of its financial statements, including annual reports.

5. Both a and d are incorrect statements.

Answer 1

First part:

Cost of house=$500,000. Down payment= 20%

Therefore, loan amount= 500,000*(1-20%) = $400,000

Monthly payment of the loan= $ 2,879.21 as follows:

Remaining balance after 10 years (PV of remaining installments)= $157,881.37 as follows:

Hence the answer is the last one of the options.

Second part:

Corporate form of organizations have unlimited life. Hence the statement (a) is incorrect.

Owners of corporate form of organizations have limited liability. Hence the statement (b) is correct.

When a stock’s intrinsic value is higher than its market price, then the stock is undervalued. Hence the statement (c) is correct.

Sarbanes-Oxley Act (SOX) stipulate that CEO and CFO are required to certify annual reports. Hence the statement (d) is incorrect.

Answer is the last option: Both (a) and (d) are incorrect statements.