Question

6. Six years ago, an investor bought a property for $2.5 million with 10% down and a 20 year mortgage with an interest rate of 5,6% a year. What were the monthly payments? 5 points Today the company sold the property and had an annual return of 10% on their investment What was the price of the property when it was sold? 5 points How much equity was in the property when it was sold? 5 points If the company had put its down payment in a savings account, what amount would they have to earn in dollars to have the same annual return as the real estate investment? 10 polets

Answer 1

1-	Monthly Payment =Using PMT function in MS excel	Pmt(rate,nper,pv,fv,type) rate = 5.6/12 =.46666% nper =12*20 =240 pv = 2250000=fv =0 type =0	PMT(0.46666%,240,2250000,0,0)	($15,604.72)
2-	Price of property	Initial investment*(1+r)^n	2500000*1.1^6	4428902.5
3-	balance in Loan account	amount finance*(1+r)^n - monthly payment*FVAF At .46666% for 72 months	2250000*(1.00466)^72 - (15604.72*85.19478)	1815109.562
	Equity in House	cost of property-balance in mortgage	2500000-1815109.562	684890.44
	FVAF at .46666% for 72 months	(1+r)^n-1 /r	(1.00466)^72- 1 / .46666%	.39757/.46666%	85.1947885
4-	Amount they would earn if downpayment is invested into saving account	amount of down payment*(1+rate of return)^n	250000*(1.1)^6	442890.25