In: Finance
I ONLY NEED QUESTION 8
The Marconi family—comprising Mrs. Marconi, aged 40, Mr. Marconi, aged 38, and their three young children— relocated to Barcelona in January 2020 when Mrs. Marconi received a job offer from a leading investment banking giant. They rented a three- bedroom condominium in Barcelona for 2.000€ per month, which included parking and condominium fees.
While renting made life easy, the Marconi family began weighing the pros and cons of purchasing a flat, in the same building, that became available in June 2020. In the past three years, the real estate market had softened somewhat, and the cost of the flats were stable. The idea of home ownership as a form of pension investment appealed to the couple. The monthly rents could be used for mortgage payments instead.
While searching for the right property they found a nice apartment with 200 square meters, very close to Diagonal-Numancia, one of the best locations of the city.
The apartment was owned and had been promoted by a state-owned construction company and was offering two alternatives:
Option A: renting the apartment with a perpetual contract, meaning for ever. The Marconi family thought that could be a good solution for them.
The family was very happy living in that area, and they had the chance to live there forever at an offered price of 1.600€ the first month, and the rent price will be growing by a 0.1% monthly.
At the same time, they were not forced to ask for a loan, which represented a heavy burden off the Marconi’s.
Option B: consisted in acquiring the property with a mortgage scheme for 40 years. The total price of the apartment is 800.000€. The family can pay an initial down payment of 200.000€ and the rest (600k€) to be paid in constant monthly payments with an annual interest rate of a 2.4% compounded monthly.
Mrs. Marconi establishes the maximum amount they can pay monthly as 2.000€.
b) What is the total amount they’ll have paid in total after 40 years? (10 points)
c) How much has the family saved (if any) by paying it yearly
instead of monthly? (10 points)
(Answer provided to only Question No. 8 as mentioned in the question)
Property Value = 800.000€
Down payment = 200.000€
Loan Amount = 600.000€ (800.000€-600.000€)
How much should the Marconi family pay per year from year 11 onwards if the interest rate from year 11 increases to 3% from 2.4%?
The answer can be found both using excel function and also through equations. Have provided both for better understanding. The answer will remain the same.
Solution using Excel functions:
Workings:
Solution using Equations:
Workings:
Thus, Marconi family have to pay 25.433€ per year from year 11 onwards if the interest rate from year 11 increases to 3% from 2.4%.