FIN 2000 Lecture Notes - Lecture 6: Mortgage Loan, Federal Housing Administration, Interest Rate Cap And Floor

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yellowcattle191

22 Jun 2017

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A mortgage on which the rate of interest, and therefore the size of the monthly payment, is adjusted based on market interest rate movements. adjustment period. On an adjustable-rate mortgage, the period of time between rate or payment changes. anchor. A behavioral bias in which an individual tends to allow an initial estimate (of value or price) to dominate the subsequent assessment (of value or price) regardless of new information to the contrary. biweekly mortgage. A loan on which payments equal to half the regular monthly payment that are made every 2 weeks. buydown. Financing made available by a builder or seller to a potential new-home buyer at well below market interest rates, often only for a short period. capitalized cost. The price of a car that is being leased. closed-end lease. All expenses (including mortgage points) that borrowers ordinarily pay when a mortgage loan is closed and they receive title to the purchased property. condominium (condo)

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Automobiles are often leased, and several terms are unique to auto leases. Suppose you are considering leasing a car. The price you and the dealer agree on for the car is $30,500. This is the base capitalized cost. Other costs added to the capitalized cost price include the acquisition (bank) fee, insurance, or extended warranty. Assume these costs are $750. Capitalization cost reductions include any down payment, credit for trade-in, or dealer rebate. Assume you make a down payment of $2,000, and there is no trade-in or rebate. If you drive 12,000 miles per year, the lease-end residual value for this car will be $21,400 after three years. The lease or "money" factor, which is the interest rate on the loan, is the APR of the loan divided by 2,400. The lease factor the dealer quotes you is .00283. The monthly lease payment consists of three parts: a depreciation fee, a finance fee, and sales tax. The depreciation fee is the net capitalization cost minus the residual value, divided by the term of the lease. The net capitalization cost is the cost of the car minus any cost reductions plus any additional costs. The finance fee is the net capitalization cost plus the residual, times the money factor, and the monthly sales tax is the depreciation payment plus the finance fee, times the tax rate.What is your monthly lease payment for a 36-month lease if the sales tax is 7 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

ceruleanturtle953

Automobiles are often leased, and several terms are unique to auto leases. Suppose you are considering leasing a car. The price you and the dealer agree on for the car is $38,600. This is the base capitalized cost. Other costs added to the capitalized cost price include the acquisition (bank) fee, insurance, or extended warranty. Assume these costs are $1,150. Capitalization cost reductions include any down payment, credit for trade-in, or dealer rebate. Assume you make a down payment of $2,500, and there is no trade-in or rebate. If you drive 12,000 miles per year, the lease-end residual value for this car will be $26,400 after three years. The lease or "money" factor, which is the interest rate on the loan, is the APR of the loan divided by 2,400. The lease factor the dealer quotes you is .00261. The monthly lease payment consists of three parts: a depreciation fee, a finance fee, and sales tax. The depreciation fee is the net capitalization cost minus the residual value, divided by the term of the lease. The net capitalization cost is the cost of the car minus any cost reductions plus any additional costs. The finance fee is the net capitalization cost plus the residual, times the money factor, and the monthly sales tax is the depreciation payment plus the finance fee, times the tax rate.

What APR is the dealer quoting you? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

APR

What is your monthly lease payment for a 36-month lease if the sales tax is 7 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Lease payment

crimsonhamster276

Charles Corporation has just signed a 144-month lease on a new equipment with a 15 year life. The minimum lease payments are $5,800 per month and are to be discounted back to the present at a 7.0 percent annual discount rate (which you must convert to a monthly rate to do the calculations on your Texas Instruments BAII Plus calculator). The estimated fair value of the equipment is $575,000. The Lessee does not have a bargain purchase option or any stated transfer of ownership at the end of the lease period.

a. Calculate the lease period as a percentage to the estimated life of the leased equipment.

b. Calculate the present value of lease payments as a percentage to the fair value of the equipment.

c. Should the lease be recorded as a capital lease or an operating lease? Address all 4 criteria from the text on page 523 to answer this question.

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FIN 2000 Lecture Notes - Lecture 6: Mortgage Loan, Federal Housing Administration, Interest Rate Cap And Floor

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