A property is available for sale that could normally be financed with a fully amortizing $82,000 loan at a 10 percent rate with monthlypayments over a 25-year term. Payments would be $745.13 per month. The builder is offering buyers a mortgage that reduces thepayments by 50 percent for the first year and 25 percent for the second year. After the second year, regular monthly payments of$745.13 would be made for the remainder of the loan term.Required:a. How much would you expect the builder to have to give the bank to buy down the payments as indicated?b. Would you recommend the property be purchased if it was selling for $5,000 more than similar properties that do not have thebuydown available?Complete this question by entering your answers in the tabs below.Required A Required BHow much would you expect the builder to have to give the bank to buy down the payments as indicated?Note: Do not round intermediate calculations. Round your final answer to 2 decimal places.Down payment

The money's present value is its current worth compared to some of its potential future value after…

Answered: A property is available for sale that…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

Ace Development Company is trying to structure a loan with the First National Bank. Ace would like to purchase a property for $3.25 million. The property is projected to produce a first year NOI of $125,000. The lender will allow only up to an 80 percent loan on the property and requires a DCR in the first year of at least 1.25. All loan payments are to be made monthly but will increase by 3.5 percent at the beginning of each year for five years. The contract rate of interest on the loan is 5.5 percent. The lender is willing to allow the loan to negatively amortize; however, the loan will mature at the end of the five-year period. Excel calculation would be appreciated! a. What will the balloon payment be at the end of the fifth year? b. If the property value does not change, what will the loan-to-value ratio be at the end of the five-year period?
A borrower is faced with choosing between two loans. Loan A is available for $89,000 at 6 percent interest for 30 years, with 6 points to be included in closing costs. Loan B would be made for the same amount, but for 7 percent interest for 30 years, with 2 points to be included in the closing costs. Both loans will be fully amortizing. Required: a. If the loan is repaid after 20 years, which loan would be the better choice? b. If the loan is repaid after five years, which loan is the better choice? (Analyze the decision with both rates at two decimal places.)
A builder is offering $117,767 loans for his properties at 9 percent for 25 years. Monthly payments are based on current market rates of 9.5 percent and are to be fully amortized over 25 years. The property would normally sell for $130,000 without any special financing. Required: a. At what price should the builder sell the properties to earn, in effect, the market rate of interest on the loan? Assume that the buyer would have the loan for the entire term of 25 years. Complete this question by entering your answers in the tabs below. Required A At what price should the builder sell the properties to earn, in effect, the market rate of interest on the loan? Assume that the buyer would have the loan for the entire term of 25 years. (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.) Sale value $ 116,134
A property is expected to have NOI of $100,000 the first year. The NOI is expected to increase by 5 percent per year thereafter. The appraised value of the property is currently $1.25 million and the lender is willing to make a $1,125,000 participation loan with a contract interest rate of 5.5 percent. The loan will be amortized with monthly payments over a 20-year term. In addition to the regular mortgage payments, the lender will receive 50 percent of the NOI in excess of $100,000 each year until the loan is repaid. The lender also will receive 50 percent of any increase in the value of the property. The loan includes a substantial prepayment penalty for repayment before year 5, and the balance of the loan is due in year 10. (If the property has not been sold, the participation will be based on the appraised value of the property.) Assume that the appraiser would estimate the value in year 10 by dividing the NOI for year 11 by an 8 percent capitalization rate. Assume that another…
A borrower can obtain an 80 percent loan with an 9 percent interest rate and monthly payments. The loan is to be fully amortized over 25 years. Alternatively, he could obtain a 95 percent loan at an 9.5 percent rate with the same loan term. The borrower plans to own the property for the entire loan term. Required: a. What is the incremental cost of borrowing the additional funds? (Hint: The dollar amount of the loan does not affect the answer.) b. What is the incremental cost of borrowing the additional funds if 2 points were charged on the 95 percent loan? c. What is the incremental cost of borrowing the additional funds if the borrower planned to own the property for only five years? Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the incremental cost of borrowing the additional funds if the borrower planned to own the years? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Incremental…
A firm purchases 150 acres of land for $195,000 and agrees to remit 17 equal annual end-of-year installments of $25,831.94 each. What is the true annual interest rate on this loan?
A builder is offering $139,371 loans for his properties at 9 percent for 25 years. Monthly payments are based on current market rates of 9.5 percent and are to be fully amortized over 25 years. The property would normally sell for $150,000 without any special financing. Required: a. At what price should the builder sell the properties to earn, in effect, the market rate of interest on the loan? Assume that the buyer would have Give typing answer with explanation and conclusion
Ace Development Company is trying to structure a loan with the First National Bank. Ace would like to purchase a property for $3.50 million. The property is projected to produce a first year NOI of $140,000. The lender will allow only up to an 80 percent loan on the property and requires a DCR in the first year of at least 1.25. All loan payments are to be made monthly but will increase by 3.5 percent at the beginning of each year for five years. The contract rate of interest on the loan is 5.5 percent. The lender is willing to allow the loan to negatively amortize; however, the loan will mature at the end of the five-year period. Required: a. What will the balloon payment be at the end of the fifth year? b. If the property value does not change, what will the loan-to-value ratio be at the end of the five-year period? Complete this question by entering your answers in the tabs below. Required A Required B What will the balloon payment be at the end of the fifth year? (Do not round…
Munabhai
Island News purchased a piece of property for $1.82 million. The firm paid a down payment of 20 percent in cash and financed the balance. The loan terms require monthly payments for 20 years at an APR of 4.00 percent, compounded monthly. What is the amount of each mortgage payment?
The Odessa Supply Company is considering obtaining a loan from a sales finance company secured by inventories under a field warehousing arrangement. Odessa would be permitted to borrow up to $320,000 under such an arrangement at an annual interest rate of 10 percent. The additional cost of maintaining a field warehouse is $20,000 per year. Assume that there are 365 days per year. Determine the annual financing cost of a loan under this arrangement if Odessa borrows the following amounts: $320,000. Round your answer to two decimal places. % $240,000. Round your answer to two decimal places. %
After two years in business, the owners have saved (have a surplus of) $123,750.00. They must decide if they will invest in property or investment bonds. If they invest in a property and a vehicle, the total cost will be $445,500,00, of which $123,750.00 will be required as a down payment. The fixed interest rate on the mortgaged amount is 5.40% compounded semi-annually for a term of 13 years. 5. What is the size of the semi-annual payments required to settle this mortgage? 6. What is the size of the final payment? 7. How long would it take (in months) to settle this loan with regular monthly payments of exactly $2000 instead of the PMT value calculated in Part 5?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS