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7) A house can be purchased for $155,000, and you have $25,000 cash for a down payment.

You are considering the following two financial options:

Option 1: Getting a new standard mortgage with a 7.5% (APR) interest and a 30-year term.

Option 2: Assuming the seller’s old mortgage, which has an interest rate of 5.5% (APR), a

remaining term of 25 years (the original term was 30 years), a remaining balance of

$97,218, and payments of $597 per month. You can obtain another mortgage for the

$32,782 from your credit union at 9% (APR) with a 10 years repayment period.

a. Compute the monthly payments for each option over the life of the mortgage.

b. Compute the total interest payment for each option.

Answer:

a) A1= $908.97

A2 = $1012.27 for 120 months, $597 for 180 months

b)I1= $197,229.2

I2 = $98,932.2

8) Mr. Smith wants to buy a new car that will cost $26,000. He will make a down payment in

the amount of $10,430. He would like to borrow the remainder from a bank at an interest

rate of 12% compounded monthly. He agrees to pay off the loan monthly for a period of

three years.

a. What is the amount of monthly payment?

b. What is the balance remaining immediately after 18th payment? What is the interest and

principal payments of the 18th payment?

Answer:

a) $517.15

b)$8,480.36, $89.08, $428.07

9) Consider the following two options for financing a car:

Option A. Purchase the vehicle at the normal price of $26,200 and pay for the vehicle over

three years with equal monthly payments at 1.9% APR financing.

Option B. Purchase the vehicle for a discount price of $24,048 to be paid immediately.

The funds that would be used to purchase the vehicle are presently earning 5% annual interest

compounded monthly. Which option is preferable?

Answer : Choose Option B

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