Question

5. 14 points. Your na points. Your parents are selling their vacation home and have 2 offers. Their friend has $100,000 today and $120.000 for each of the next three ye and $120.000 for each of the next three years. A broker has offered to pay them 5400.000 today the relevant discount rate is , which offer should they choose? Show calculations ve 2 offers. Their friend has offered to pay them 6. 29 total points. You have decided that you will start a savings plan. You will deposit $20 per week into an acco that you think will pay 8% per year. A 10 points. How much will you have in 15 years? B. 12 points. Suppose that, with your savings, you will buy a house after 15 years. In addition to your down payment, you will borrow $400,000. If the interest rate is 3.6% on your 30-year mortgage. What will be your monthly payment? C. 2 points. Suppose that the down payment is equal to what you will have in your saving account. How much does your home cost? D. 5 points. How much total interest will you have paid once your mortgage is paid off?

Answer 1

5	The price of the vacation home as per the given information is :
		$
	Today	400000	Full price
	If taken the amount in installments
		Today	Year 1 ending	Year 2 ending	Year 3 ending	Total
		100000	120000	120000	120000	460000
	Discount rate is 8%
	then PV of the cash flows are	100000	111111	102881	95260	409252
	Discounting factors		1.08	1.1664	1.259712
	Since the PV of future cash flows at a discount rate os 8% is $ 409252 is more than $ 400000 received today full price.
6	As per the given information the deposit of $ 20 per week in savings plan with 8% interest rate per year.
A.	Calaculation of balance in savings plan account after 15 years with interest amount
		Year1	Year2	Year3	Year4	Year5	Year6	Year7	Year8	Year9	Year10	Year 11	Year 12	Year13	Year 14	Year 15	Total
	Deposits in the plan	1040	1040	1040	1040	1040	1040	1040	1040	1040	1040	1040	1040	1040	1040	1040	15600
	Add: Interest earned	2014.68	1788.41	1578.90	1384.90	1205.28	1038.96	884.97	742.38	610.35	488.10	374.91	270.10	173.06	83.20	0.00	12638
	Discounting factors	2.94	2.72	2.52	2.33	2.16	2.00	1.85	1.71	1.59	1.47	1.36	1.26	1.17	1.08	0.00	28238
	After 15 years balance is savings A/c is $ 28238 I have taken 52 weeks per year for 15 years
B.	Calculation of monthly payment on borrowed amount of $ 400000
	No.of years	30
	Rate of Interest p.a	3.60%
	Mode of payment	Monthly
	The monthly payment or EMI is	1819
C.	Down payment is savings a/c balance	28238
	Borrowed funds	400000
	Total house cost	428238
D.	Monthly EMI on the loan	1819
	Total payments for the year	21828
	For 30 Years	654840
	Principal amount borrowed	400000
	Total interest payments to be paid	254840