Question

2. (12 points) Consider a homebuyer/investor who plans to buy a new house, the price of which is $ 500,000. Suppose the buyer does not have any initial savings for the down payment. To buy the house, he needs to borrow $ 500,000 from a bank in the form of a mortgage loan. The mortgage is a 30-year-fixed-rate mortgage. After buying the house, the buyer budget is $ 30,011 per year. That is, if the mortgage asks him to repay more than $ 30,011 per year (this happens when the interest rate is too high), then he cannot afford it and would choose not to buy this house. Derive the investment of this buyer as a function of interest rate r.

Answer 1

EMT = Loan (PVAF (, n years) $ 30,011 = $500,000 ID VMF C87., 30 years! PVAF (80., 30 years) $ 500,000 $30,011 16.66 at 4%. PUAF- 17.2920 at 5% PVAF - 15.3725 1). difference in int rate -1.9195 decrease in PYAF Required decrease = 17.2920 -16-66 = 0.632 inc in int rate for 0.632 dec= 17*0.632/ 1.9195 -.32937, Int rate : 4%+0.3239% =4.3239% In PUAF table against 30 years at what rate PVAR *16.66" will be the int rate. PUAF M 2

Answer 2

Given that, Cost of house = $500,000 Borrowed money = $ 500,000 Mestogage time - 30 years. To be prid per year = $ 30,01

Cost of house - $ 500,000 R-PXM 1-(1491)-n R = Monthly Payment or interest rate R= number of peried :p= principle Rs 38x12 = 360 R = 3001 = 2500 R = Pxr {-(1431)+") 12 2500 - 500,000 Il-(1101) r] 2500 - 500,000 - (ltr)- 300

360 200 1-(1+5)**, 500,000 2500 1- (1+31) = 200 1 - 200 = (1+371) 360 -199 - 64+51)360 (-1991: ...199 647)365 (2013): 360 = -360 (4+or) -360-| =) - 199 2-360 (1791) -361 - 199 0.55 = (H) E (HD) -380 360

6। (141)- - 0.55 ___- 0-51 - 1 । -6-55-1 19.49 := 41436 11- (०.५१) ज0.११