Mr. Abdullah borrows $80,000 at 14 percent interest toward the purchase of a home. His mortgage is for 25 years. a. How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation) b. How much interest will he pay over the life of the loan (for 25 years)? c. How much should he be willing to pay to get out of a 14 percent mortgage and into a 10 percent mortgage with 25 years remaining on the mortgage? Assume current interest rates are 10 percent. Carefully consider the time value of money.
Mr. Abdullah borrows $80,000 at 14 percent interest toward the purchase of a home. His mortgage is for 25 years. a. How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation) b. How much interest will he pay over the life of the loan (for 25 years)? c. How much should he be willing to pay to get out of a 14 percent mortgage and into a 10 percent mortgage with 25 years remaining on the mortgage? Assume current interest rates are 10 percent. Carefully consider the time value of money.
Chapter8: Taxation Of Individuals
Section: Chapter Questions
Problem 38P
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![Mr. Abdullah borrows $80,000 at 14 percent interest toward the purchase of a home. His mortgage is
for 25 years.
a. How much will his annual payments be? (Although home payments are usually on a monthly
basis, we shall do our analysis on an annual basis for ease of computation)
b. How much interest will he pay over the life of the loan (for 25 years)?
c. How much should he be willing to pay to get out of a 14 percent mortgage and into a 10 percent
mortgage with 25 years remaining on the mortgage? Assume current interest rates are 10
percent. Carefully consider the time value of money.
Hint: annuity formula
Annuity Formulas
• Present Value of an Annuity
1-
PV - C
(1+r)'
• Future Value of an Annuity
(1+r)' -
FV - C](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F846c75ac-0770-4d5e-97e1-f6484297787d%2F33c30d4c-4174-4ea3-b2a6-d099c4073242%2Fjp2wnso_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Mr. Abdullah borrows $80,000 at 14 percent interest toward the purchase of a home. His mortgage is
for 25 years.
a. How much will his annual payments be? (Although home payments are usually on a monthly
basis, we shall do our analysis on an annual basis for ease of computation)
b. How much interest will he pay over the life of the loan (for 25 years)?
c. How much should he be willing to pay to get out of a 14 percent mortgage and into a 10 percent
mortgage with 25 years remaining on the mortgage? Assume current interest rates are 10
percent. Carefully consider the time value of money.
Hint: annuity formula
Annuity Formulas
• Present Value of an Annuity
1-
PV - C
(1+r)'
• Future Value of an Annuity
(1+r)' -
FV - C
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