Question

In: Accounting

You are considering the purchase of a home that would require a mortgage of $250,000 (i.e....

  1. You are considering the purchase of a home that would require a mortgage of $250,000 (i.e. you are borrowing $250,000 from a bank to buy the house. You intend to pay the bank back through equal monthly instalments). Suppose you are interested in the arithmetic sum of all the instalments you pay. How much more in total will you pay if you select a 30-year mortgage with an APR of 5.65% rather than a 15-year mortgage at an APR 4.9%? (Round the monthly payment amount to 2 decimal places.)

Explain your work

  1. A salesperson gives you the following payment plans, "Buy this new car for $30,000 cash OR, with an appropriate down payment, pay $800 per month for 36 months at 5% interest.". If these two offers are financially equivalent at the stated interest rate, calculate the "appropriate" down payment. (Remember, when interest rates are quoted as they are in this question, they are APRs. Also, Financially equivalent means that the two streams of cashflows have the same PV)

Explain your work.

  1. You're ready to make the last of four equal, annual payments on a $1,000 loan with a 7.77% interest rate. How much of this last payment is towards paying off accrued interest and how much towards paying off the remaining principal? (Read Amortized Loans section in Chapter 5 in your textbook)

Explain your work

  1. An investment offers to pay $ 100 a year forever starting at the end of year 6. If the interest rate is 8%, then what is the investment’s value today? (Take note: first payment happens at the end of 6th year, not the end of 1st year.)

Explain your work

  1. If the EAR is known to be 16.08% on a debt that has quarterly payments, what is the APR? (While you can use the formula from the textbook, try solving it on the financial calculator using ICONV)

Explain your work

Solutions

Expert Solution

ekkarill92 answered 2 years ago
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