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In: Finance

A large bank sent you what looks like junk mail, but upon closer examination you realized...

A large bank sent you what looks like junk mail, but upon closer examination you realized it might be worth a second look. The mailer outlined a loan and investment program, designed to help first time home-buyers accumulate funds for a down payment on a primary residence. The basic outlines of the loan program are as follows.

  • Up to $25,000 loan
  • 3% annual interest rate
  • Ten year final maturity will full amortization

In order to qualify you would need a job and be willing to invest the loan proceeds into a fund managed by the bank. The investment fund is expected to return approximately 6% per annum. You will be required to pledge the investment account balance as collateral for the loan and if you fail to make monthly loan payments you forfeit the investment account balance. You will be charged no annual fees on your investment account so long as you are current on your loan payments.

Please answer the following questions.

  1. Assuming a $25,000 initial loan balance, what excel formula(s) would you use to calculate the minimum monthly loan payment? Write out the formula and the relevant formula inputs.

Rate =

Nper =

Pmt =

{pv] =

[fv] =

[type] =

Monthly loan payment ______________________

  1. What is your expected investment account balance at the end of 10 years? Write out the excel formula you would utilize and the relevant inputs.

Rate =

Nper =

Pmt =

[pv] =

[fv]=

[type] =

Accumulated investment account balance ________________

  1. Assuming you utilized the investment account balance to fund a down payment, equal to 20% of the value of a house, how much could you afford to pay for the house and what would the initial mortgage balance on the house be?

Property Value _________________

Down Payment ________________

Mortgage _____________________

  1. Assuming the mortgage balance in Part C, what is the estimated monthly mortgage payment assuming 4.5% fixed rate, 30 year full amortizing loan? Write out the excel formula you would use to calculate the monthly payment and write down the relevant inputs.

Rate =

Nper =

Pmt =

[pv] =

[fv] =

[type] =

Monthly mortgage payment=

Solutions

Expert Solution

jeff jeffy answered 1 year ago
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