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Larry Davis borrows $75,000 at 11 percent interest toward the purchase of a home. His mortgage is for 25 years. Use Appendix
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Larry Davis borrows $75,000 at 11 percent interest toward the purchase of a home. His mortgage is for 25 years. Use Apendix D

(a) Using formula

P=C1/r-1/(r(1+r)

Here P = $75,000

r = 11%

t = 25 years

Putting all values

C = $8,905.52

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(b) Total Money paid during life of Loan = CxT

C = $8,905.52

T= 25 years

Total Paid = $222,637.95

Money paid in Interest = Total Paid - Principle

$222,637.95 - $75,000 = $147,637.95

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(c) If Larry gets loan at 9%

Let say he makes the same repayments as he is doing at 11% then

using

P=C1/r-1/(r(1+r)

C = $8,905.52

r = 9%

t = 25 years

using it

P = $87,475.18

So if Loan was $87,475.18 then he has to make repayment of $8,905.52 (75,000@11%, 25 yrs)

He should be willing to pay anything which makes his Loan + fee < $87,475.18

So, $75,000 + fee < $87,475.18

fee <$12,475.18

He should be willing to pay till $12,475.18

Please comment if you need and further help and give thumps up if answer is satisfactory

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