You would like to buy a house that costs $350,000. You have $50,000 in cash that you can put down on the house, but you need to borrow the rest of the purchase price. The bank is offering a 30-year mortgage that requires annual payments and has an interest rate of 8% per year. You can afford to pay only $25,580 per year. The bank agrees to allow you to pay this amount each year, yet still borrow $300,000. At the end of the mortgage (in 30 years), you must make a balloon payment; that is, you must repay the remaining balance on the mortgage. How much will this balloon payment be? a) The PV of the annuity is $.. b) The balloon payment is $. (Round to the nearest dollar.) (Round to the nearest dollar.)
You would like to buy a house that costs $350,000. You have $50,000 in cash that you can put down on the house, but you need to borrow the rest of the purchase price. The bank is offering a 30-year mortgage that requires annual payments and has an interest rate of 8% per year. You can afford to pay only $25,580 per year. The bank agrees to allow you to pay this amount each year, yet still borrow $300,000. At the end of the mortgage (in 30 years), you must make a balloon payment; that is, you must repay the remaining balance on the mortgage. How much will this balloon payment be? a) The PV of the annuity is $.. b) The balloon payment is $. (Round to the nearest dollar.) (Round to the nearest dollar.)
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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Transcribed Image Text:You would like to buy a house that costs $350,000. You have $50,000 in cash that you can put down on
the house, but you need to borrow the rest of the purchase price. The bank is offering a 30-year mortgage
that requires annual payments and has an interest rate of 8% per year. You can afford to pay only
$25,580 per year. The bank agrees to allow you to pay this amount each year, yet still borrow $300,000.
At the end of the mortgage (in 30 years), you must make a balloon payment; that is, you must repay the
remaining balance on the mortgage. How much will this balloon payment be?
a) The PV of the annuity is $.
b) The balloon payment is $.
(Round to the nearest dollar.)
(Round to the nearest dollar.)
Expert Solution
Step 1
PV is the current worth of cash flows that are expected to occur in the future.
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