Question

Doris Wade purchased a condominium for $50,000 in 1980. Her down payment was $10,000. She financed the remaining amount as a $40,000, 30-year mortgage at 8%, compounded monthly. Her monthly payments are $200. It is now 2000 (20 years later) and Doris has sold the condominium for $100,000, immediately after making her 240th payment on the unit. Find her effective annual internal rate of return on this investment Choose the closest answer below. OA. 5.5% O B. 7.6% OC. 9.8% OD. 3.1%

Answer 1

Remaining loan principal immediately after the 240th payment of $200
Monthly Payments =	$200
Monthly Rate = 7%/12	0.67%
Period  = 30 x 12 = 360 - 240	120
Present Value = PV(.67%,120,-200)	$16,484.30
Future Value (FV) = (100,000 - 16484.30)	$83,515.70
Period	240
Present Value = Down payment	$ 10,000.00
Monthly Payments =	$200
IRR = Rate(240,-200,-10000,83515.70)	0.247%
Effective IRR = ((1 + .247%)^12 -1)	3.01%
Option D 3.1%  is correct

3 Remaining loan principal immediately after the 240th payment of $200 4 Monthly Payments = 5 Monthly Rate = 7%/12 6 Period = 30 x 12 = 360 - 240 7 Present Value = PV6.67%, 120,-200) 200 =8%/12 =360-240 =PV(B5,B6,-B4) 9 Future Value (FV) = (100,000 - 16484.30) 10 Period 11 Present Value = Down payment 12 Monthly Payments = 13 IRR = Rate(240,-200,-10000,83515.70) 14 Effective IRR = ((1+.247%)^12-1) 15 Option D 3.1% is correct =100000-B7 240 10000 200 =RATE(B10,-B12,-311,89) =((1+B13)^12)-1