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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Question
I need parts 4-6
Transcribed Image Text:**Part 1: Financing your home**
In this part of the project, you will be purchasing the home you chose in the Budget Project. You will need to obtain a loan from a financial institution since you cannot pay cash for your home. You will be researching three different loan scenarios and determining which loan option best fits your situation and needs.
**Purchase price of the home you chose from the Budget Project:** $431,873
**Loan Scenario 1:** In this scenario, your financial institution is offering you a 30-year fixed mortgage with a 20% down payment at a 3.43% fixed rate.
**Determine the following:**
1. **Down payment = price * 20%**
= $431,873 * 0.20 = $86,374.60
2. **Amount finance = price * 80%**
= $431,873 * 0.80 = $345,498.40
3. **Monthly payment = $1,537.97**
**Loan Calculation Table:**
| N | 30*12 = 360 |
|------|----------------------|
| I% | 3.43 |
| PV | 345498.40 |
| PMT | -1537.97 |
| FV | 0 |
| P/Y | 12 |
| C/Y | 12 |
| PMT | END |
4. **What is the total cost of the loan over 30 years? How much of this cost is interest?**
5. **What is the total you will expect to pay at closing for this loan option?**
Closing costs must be paid before a bank will finance your loan. These costs include a fee to close, the down payment, and first month’s mortgage payment. Assume the fee to close a loan is $2,700.
6. **What are the advantages of this loan? What are the disadvantages?**
The table provides key financial parameters for a mortgage loan, including the number of payments (N), interest rate (I%), present value or loan amount (PV), payment (PMT), future value (FV), and payment frequency per year (P/Y and C/Y).
Expert Solution
Step 1
According to the question we need to find the total cost, Interest paid, closing amount on the loan, this can be done through some basic concepts.
1. Total cost of loan =
2. Interest paid on loan = Total cost of the loan - principal amount.
3. Closing payment = Fee to close + Down payment + first month mortgage payment.
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