question 32 Question 32 3 points Save Answer TR Estate Company offers you a coup
ID: 2736050 • Letter: Q
Question
question 32
Question 32 3 points Save Answer TR Estate Company offers you a couple of houses. Which deal will you be able to afford? You can make payments of $1,600 a month. However, you would like to pay as little as possible (consider finding the best value based on the years you are going to spend paying off the loan). Hint: PMT does matter, so the number of years spend paying off your debt. Based on how you approach this question, it has 2 right answers. Both are acceptable. o A. $250,000 house; APR 5%; 25 years; monthly compounding B. $265,000 house, APR 5.5%, 27 years; monthly compounding O C. $270,000 house, APR 5.3%; 30 years, monthly compounding o D. $300,000 house. APR 4.65%; 35 years; monthly compounding O E. $321,000 house; APR 5%; 25 years; monthly compoundingExplanation / Answer
Formula for calculation of EMI is PMT function of excel.
EMI under option A is calculated as below:
PMT(rate,nper,pv)
rate=5%
nper=12*25
PV=$250,000
Substituting the values in the formulaEMI=PMT(.05/12,25*12,-250000)
=$1,461.48.
Total payments made over the tenor =25*12*$1,461.48=$438,444.
EMI under option B:
rate=5.5%
nper=12*27
PV=$266,000
Substituting the values in the formulaEMI=PMT(.055/12,27*12,-266000).
EMI=$1,577.74
Total payment over the tenor=$511,187.76
For an incremental loan of $15,000 increase in interest rate of .05% for an increase in tenor of 2 years increase in payments =$511,187.76 - $438,444
=$72,743.76
EMI under Option C:
rate=5.3%
nper=12*30
PV=$270,000
Substituting the values in the formulaEMI=PMT(.053/12,30*12,-270000)
EMI=$1,499.32
Total payments over the tenor =30*12*1499.32 =$539,755.
For an incremental loan of $20,000 increase in rate of .03% and increase in tenor of 5 years.
=$539,755 -$438,444
=$101,311.
EMI under optionn D:
rate=4.65%%
nper=12*35
PV=$300,000
Substituting the values in the formulaEMI=PMT(.0465/12,35*12,-300000)
EMI=$1,447.77
Total payments over the tenor=35*12*$1,447.77=$608,063.4.
For an incremental loan of $50,000 decrease in rate of .035% and increase in tenor of 10 years.
=$608,063.4. -$438,444
=$169,619.
EMI under option E:u
Rate=5%
nper=12*25
PV=$321,000
Substituting the values in the formulaEMI=PMT(0.05/12,25*12,-321000)
EMI=$1,876.53.
As the EMI under Option E is more than $1,600 this is not acceptable option.
So, acceptable options are Option A and Option B.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.