Problem 2 of 3
The Smith family can purchase a house valued at $100 000.00 with a down payment of $10 000.00, or they could rent a similar house.
(a) The monthly payment for a mortgage, amortized over 15 years at an interest rate of 6.50% compounded monthly, is $784.00. If the Smiths purchase the house, calculate the total amount paid, including the down payment, by the end of the first 5 years.
(b) Real estate appreciates at a rate of 3% per year. Determine the equity in the purchased house after 5 years. Show all work.
(c) Given that it is more expensive to rent, give two reasons why the Smiths would choose to rent.
Solution
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By: Jason
A)
N=5 (The Amount of Time)
I%= 6.50 (The Interest Rate)
PV= 10000 (The Down Payment)
PMT= 784.00 (Monthly Payment)
FV= (alapha solve) 14236.48 (This is What We are Trying To Figure Out)
P/Y= 12(It is Compounded Monthly So This Value is The Amount of Months in A Year)
C/Y= 12 (It Gets Compounded Every Time a Payment is Made)
B)
N=5( The Amount of Time)
I%= 3.0 ( The Interest Rate)
PV= 10000 (The Down Payment)
PMT= 784.00 (The Monthly Payment)
FV= (alapha solve) 14065.28 (This is The New Equility For the Purchased Home After 5 Years)
P/Y= 12(It is Compounded Monthly So This Value is The Amount of Months in A Year)
C/Y= 12 (It Gets Compounded Every Time a Payment is Made)
C)
i) they do not need the house for a permenant amount of time
ii) they do not have to worry about repairs to the premisis. The landlord duty.
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