An investor bought a $120,000 condo by putting 20% down and borrowing the rest u

Question

An investor bought a $120,000 condo by putting 20% down and borrowing the rest using a 30 year mortgage with an annual rate of 5.2%.

1)Calculate the monthly payment. Ignore the opportunity cost of the down payment to the investor.

2)Three years later she sold the condo, what was her return on her investment? (Think IRR or rate function since the intermediate cash flows are fixed) What percentage of her equity at the time of the sale was due to the change in the value of the condo?

3)Create a data table with the return on investment as the output. The column input is the down payment percent, going from 0% to 25% in increments of 5%. Discuss your findings from the data table.

4)What price would she have to sell the condo after three years in order to make a return of 0.5% a month?

5)If a roommate paid rent of $200 a month starting at the beginning of year three (end of year two), what would be the return on her investment if she sold the condo at the end of year three? What price would she have to sell the condo for at the end of year three (with additional rent) in order to make a return of 0.5% a month? Does it make sense given your earlier answer? Explain

Explanation / Answer

1) Value 120000 Downpayment 24000 Mortgage 96000 Tenure 30 yrs Rate 5.20% Monthly Payment $527.15 =-PMT(5.2%/12,30*12,96000,,) 2) Selling price 120000 Value of Loan $91,679.85 Cash to investor $28,320.15 Return -1.55% per month 3) Value 120000 Data Table Downpayment % 20% Downpayment 24000 Downpayment Return Mortgage 96000 -1.55% Tenure 30 0% -12.08% Rate 5.20% 5% -5.22% Monthly Payment $527.15 10% -3.09% 15% -2.11% Selling price 120000 20% -1.55% Value of Loan $91,679.85 25% -1.19% Cash to investor $28,320.15 Return -1.55% per month 4) Value 120000 Downpayment % 20% Downpayment 24000 Mortgage 96000 Tenure 30 Rate 5.20% Monthly Payment $527.15 Selling price 141100.00 Value of Loan $91,679.85 Cash to investor $49,420.15 Return 0.50% per month 5) FV of rentals @ 5.20% FV of rentals $3,220.53 Value 120000 Downpayment % 20% Downpayment 24000 Mortgage 96000 Tenure 30 Rate 5.20% Monthly Payment $527.15 Selling price 137900.00 FV of Rental 3220.53 Value of Loan $91,679.85 Cash to investor $49,440.68 Return 0.50% per month Since additional income via rentals are available, the selling price required is lower

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