You finally purchased a house 3 years ago. The price tag on your house was $ 160

Question

You finally purchased a house 3 years ago. The price tag on your house was $ 160,000. You were able to secure a 15 year mortgage at 8.5%, monthly compounding. Currently, what is the remaining balance on your mortgage? A great opportunity came up. You have a chance to get an investment that pays $500 at the end of every six months for the next three years. APR is 12%. Here is the trick, interest is compounded quarterly. Find the PV of the investment. It is time to buy a used Toyota Camry. You got a loan for 10 years. The car cost you $12,000. It is not a new car, but in a very decent shape. The bank expects you to pay $150 a month. Calculate the EAR. After negotiations, you purchased a 20-year investment that pays you $100 at the end of year one, $500 at the end of year 2, and $750 at the end of year 3. Additionally, the investment pays you some fixed cash flow, let's call it "X", at the end of each of the remaining seventeen years. You pay $5,544.87 for this investment. Required return on similar investments is 9%. Calculate the annual cash flow that you are going to receive at the end of the final seventeen years; in other words, Find "X". Based on the Fed's prediction, this year inflation is expected to reach 2.7%. You also were told that it is going to be doubled next year. After that, for 7 years it is going to be stable at 4.12%. Default risk premium is zero. The risk-free rate is at 2.21%. Calculate the yield on 8-year Treasury security.

Explanation / Answer

Answer 2.

PV = 500/1.03^2 + 500/1.03^4 + 500/1.03^6 + 500/1.03^8 + 500/1.03^10 + 500/1.03^12

PV= $2,170.72

Answer 3.

Let APR = i%

12,000 = 150*[1-{1/(1+i/12)}^120] / (i/12)

I = 8.69%

Answer 4.

5,544.87 = 100/1.09 + 500/1.09^2 + 750/1.09^2 + x/1.09^4 + x/1.09^5 + ... + x/1.09^20

4,453.1 = x*6.5973

X = $675

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