Question

Just answer the last two questions (question e&f)

Question 2 Rick the developer is having a hard time selling a house listed at
$300,000. Being desperate he decides to offer financing: a $300,000 super "sub-prime" 25-
year mortgage at a mere quoted 6% (annual yield). Payments are monthly. (When calculating
the effective interest rate, use 8 decimals)
(a) . What is the monthly payment Rick is asking the purchaser to make? Hint:
calculate monthly effective interest rate
Rick is so desperate that he is also willing to sell the house for $150,000 cash today. Hank can
get financing from the bank at a mortgage rate of 8% (annual yield).
(b) What is the monthly payment on this bank mortgage for $150,000 amortized
over 25 years?
(c) (1 mark) Which of the above mortgages should Hank take?
(d) (2marks) How much Hank would save in present time?
Hank’s monthly salary is $3,000 and by law he cannot pay more than his one-third income as
installment.
(e) How many years it would take Hank to pay the mortgage loan if he decided to
take the loan from the bank?
(f) What is the number of years that minimize the installment and how much would
be the installment?

Answer 1