2. Ms. Bayer comes to your bank, Bank of America (BOA), to ask for advice on a planned house purchase. Her annual salary is $60,000. BOA does not charge a fee (just assume this; it is not true in the real world) on housing loans, and it allows a custom's monthly mortgage payment to be equal to 30% of the customer's monthly salary (before-tax). For a 30-year fixed-rate loan with an interest rate of 12%, compounded monthly, answer the following two questions: (1) how much (the maximum amount) can BOA lend to Ms. Bayer? (2) To finance the purchase of a house, BOA requires that the home buyer come up with a 20% down payment. Assume Ms. Bayer can make the 20% down payment. Based on the maximum loan amount, what is the maximum price of a house Ms. Bayer can buy?
2. Ms. Bayer comes to your bank, Bank of America (BOA), to ask for advice on a planned house purchase. Her annual salary is $60,000. BOA does not charge a fee (just assume this; it is not true in the real world) on housing loans, and it allows a custom's monthly mortgage payment to be equal to 30% of the customer's monthly salary (before-tax). For a 30-year fixed-rate loan with an interest rate of 12%, compounded monthly, answer the following two questions: (1) how much (the maximum amount) can BOA lend to Ms. Bayer? (2) To finance the purchase of a house, BOA requires that the home buyer come up with a 20% down payment. Assume Ms. Bayer can make the 20% down payment. Based on the maximum loan amount, what is the maximum price of a house Ms. Bayer can buy?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:2. Ms. Bayer comes to your bank, Bank of America (BOA), to ask for advice on a planned house
purchase. Her annual salary is $60,000.
BOA does not charge a fee (just assume this; it is not true in the real world) on housing loans, and it
allows a custom's monthly mortgage payment to be equal to 30% of the customer's monthly salary
(before-tax).
For a 30-year fixed-rate loan with an interest rate of 12%, compounded monthly, answer the
following two questions: (1) how much (the maximum amount) can BOA lend to Ms. Bayer? (2)
To finance the purchase of a house, BOA requires that the home buyer come up with a 20% down
payment. Assume Ms. Bayer can make the 20% down payment. Based on the maximum loan
amount, what is the maximum price of a house Ms. Bayer can buy?
3. Refer to the previous problem, work out an amortization table (similar to that on Slide 4.55) for
the 360 periods. Briefly discuss what you observe from the results. Turn in the Excel file. Name
= HW 2 CH 4 Clinton Ford Obama.xls.
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