Jane is a builder. Interest rates are high, so, to sell her newly developed properties faster, she is offering to "buy-down" the interest rate on the buyers' loans so that more buyers can afford the monthly payments needed to purchase her homes. The buydown loan would be for $180,000, 30-year term at 9% interest. Current market rates are 11%. The houses would normally sell for $220,000 without any special financing. Given the buy-down loan offer, at what price could Jane sell the houses? Assume that buyers all hold their loans until maturity. Hint: Discount the payment savings to the present.
Jane is a builder. Interest rates are high, so, to sell her newly developed properties faster, she is offering to "buy-down" the interest rate on the buyers' loans so that more buyers can afford the monthly payments needed to purchase her homes. The buydown loan would be for $180,000, 30-year term at 9% interest. Current market rates are 11%. The houses would normally sell for $220,000 without any special financing. Given the buy-down loan offer, at what price could Jane sell the houses? Assume that buyers all hold their loans until maturity. Hint: Discount the payment savings to the present.
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
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Jane is a builder. Interest rates are high, so, to sell her newly developed properties faster, she is offering to "buy-down" the interest rate on the buyers' loans so that more buyers can afford the monthly payments needed to purchase her homes. The buydown loan would be for $180,000, 30-year term at 9% interest. Current market rates are 11%. The houses would normally sell for $220,000 without any special financing. Given the buy-down loan offer, at what price could Jane sell the houses? Assume that buyers all hold their loans until maturity. Hint: Discount the payment savings to the present.
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