A young engineer wishes to buy a house and can afford monthly loan payments of $1,250. Loans are

available at 4% annual interest compounded monthly. If he can make a $5,000 down payment, what is the price

of the most expensive house that he can afford to purchase under each of the following loan terms?

(a) A ten year loan with monthly payments

(b) A fifteen year loan with monthly payments

(c) A thirty year loan with monthly payment

please show ALL your calculations with great detail.

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Irving HeathcoteLv2

14 Oct 2018

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Elizabeth wishes to buy a $250,000 house in Lexington, KY. She can afford monthly payments up to $800. Thirty-year loans are available at 3% interest compounded monthly. If she can make a $25000 down payment, can she afford to purchase the house?

goldreindeer163

1. Cash Flow Diagrams and Compounded Interest: John decides to take out a loan for $10,000 for school at an annual interest rate of 10%. He agrees to make four equal payments, but will defer these payments for four years while in school. Starting at the end of the 5^th year, he makes four equal annual payments (years 5, 6, 7 and 8). At the end of the 8^th year, the loan is paid off.

(a) Create a table that depicts the cash flow diagram for this problem. It should cover years 0 to 8, and should show the balance, interest charges, each payment, how much of that payment went towards interest and how much towards the principal. The balance should be zero at the end of the 8^th year. Use trial and error to find the required payment.

(b) Compute the annual payment using one of the built-in Excel functions discussed in class. Show that this gives the same answer as (a).

(d) Suppose interest is compounded twice per year instead of annually, but he still makes four annual payments starting at the end of the 5^th year. What is the new annual payment?

2. Kate will purchase a house for $500,000 with a 10% down payment and $10,000 in closing costs. The closing costs are included in the loan. A 10-year loan is arranged at 5% interest compounded monthly.

(a) What is the monthly payment?

(b) By choosing to include the closing costs in the loan, how much money was paid in interest on the closing costs over the life of the loan.

(c) What is the effective interest rate for this loan? (Hint: you must take into account the monthly compounding AND the closing costs.)

(d) Suppose closing costs were paid at closing. How does this change the overall cost of the loan? How does this change the effective interest rate?

(NOTE: EVERYTHING SHOULD BE DONE IN EXCEL. OTHERWISE NO POINTS. INCLUDE THE FUNCTION USED AS WELL)

greensardine434

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