You're a 30-year-old professional earning $75,000annually and you're considering buying your firsthome in a mid-sized city. The average home price inyour target neighborhood is $300,000, and you'vemanaged to save $30,000 for a down payment. Yourmonthly expenses, including rent, currently total$2,500, and you have $10,000 in student loan debt at5% interest, with minimum monthly payments of$200. Your credit score is 720, and you've been pre-approved for a 30-year fixed-rate mortgage at 4.5%interest. You're torn between buying a home now orcontinuing to rent while saving more and payingdown your student debt. Given your financialsituation, current market conditions, and long-termfinancial goals, should you proceed with buying ahome or continue renting?

Income and Expenses Analysis:Annual Income: You earn $75,000 annually.Monthly Income: Your monthly…

Answered: You're a 30-year-old professional…

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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You are thinking about buying a house.You find one you like that costs $200,000. You learn that your bank will give you a mortgage for $160,000 and that you would have to use all of your savings to make the down payment of $40,000. You calculate that the mortgage payments, property taxes, insurance, maintenance, and utilities would total $950 per month. Is $950 the cost of owning the house? What important factor(s) have you left out of your calculation of the cost of ownership, if any?
You are thinking of buying a house beside the College which you will rent to students. You expect to receive $1,125 a month in rental income. Your real estate agent estimates that you will be able to sell the property for $225,000 at the end of 24 months. You'd like a return of at least 0.4% per month. What is the most that you should pay for the house, assuming that you will purchase the house today and receive the first (beginning of month) rental payment today. What is the most that you should pay for the property today? (Round to the nearest dollar.)
1. You are 25, recently graduated, and have a job paying you $40000 a year. a) You want to take a trip to Rome next summer and want to save $4000 between now (January 1) and June 1 of next year (18 months). You have an account that will earn 6% annually. How much will you need to save every month to get to the desired amount? b) You think it might be a good time to buy a condo instead of renting. You want to borrow $140,000 at 3.7% for 30 years. What will your monthly payments be? c) You plan to take off two years of work starting in five years to complete your master's degree. If you want to have $37000 in an account that you can live off, how much do you have to put aside monthly now in an account paying 5% per year? d) You want to retire in 45 years with $1 million in the bank. You think you can get an average of 5.2% annually in an investment account. How much will you have to save every year to get to $1 million? e) If your million dollar account continues to earn 5.2% a year, how…
You are staying in Raleigh! With a post-graduation career in the Triangle, you need a place to live. A move-in ready townhouse is $300,000 using a 20-year mortgage and putting 10% as a cash down payment (i.e., you only need to finance 90% of the purchase price). The current interest rate you have available is a 4.25% APR compounded monthly. "Closing costs," that is, transaction costs associated with purchasing the house, are 2% of the purchase price. Suppose, you expect home values in Raleigh to continue to grow at 2.5% per year. Finally, if you were to sell the home, you would realize 5% in fees (costs of a realtor and associated transaction costs). Alternatively, you can rent an apartment for $1,900 per month. There is a $3,000 security deposit, due at the time you move in. Assume that the cost of the rental increases 15% every five years. Mortgage and rental payments are made at the end of every month. Assuming you will live in this location for 10 years (i.e., you sell the house or…
You've just received a $10,000 bonus at work and you're trying to decide how to use it wisely. Your current financial situation includes $5,000 in credit card debt at 18% interest, a $200,000 mortgage at 4% interest, and $15,000 in a savings account earning 1% interest. You also have the option to invest in your company's 401(k) plan, which offers a 50% match on contributions up to 6% of your salary. Your annual salary is $80,000, and you're currently contributing 3% to your 401(k). You have no other significant debts or savings. Considering your current financial picture, what would be the most effective way to allocate this $10,000 bonus to improve your overall financial health?
Kelly Robins is considering purchasing a usedautomobile. The price including the title and taxes is$15,455. Kelly is able to make a $2,455 down payment. The balance of $13,000 will be borrowed fromher credit union at an interest rate of 9.45% compounded daily. The loan should be paid in 36 equalmonthly payments. Compute the monthly payment.What is the total amount of interest Kelly has to payover the life of the loan?
You are thinking of purchasing a house. The house costs $354,000. You have $45,000 in cash that you can use as a down payment on the house, but you need to borrow the rest of the purchase price. The bank is offering a 25-year mortgage that requires annual payments and has an interest rate of 6% per year. What will be your annual payment if you sign this mortgage?
You currently pay $10,000 per year in rent to a landlord for a $100,000 house, which you are considering purchasing. You can qualify for a loan of $80,000 at 9% if you put $20,000 down on the house. To raise money for the down payment, you would have to liquidate stock earning a 15% return. Neglect other concerns, like closing costs, capital gains, and tax consequences of owning, and determine whether it is better to rent or own.
You need a new car and the dealer has offered you a price of $20,000, with the following payment options: (a) pay cash and receive a $2,000 rebate, or (b) pay a $5,000 down payment and finance the rest with a 0% APR loan over 30 months. But having just quit your job and started an MBA program, you are in debt and you expect to be in debt for at least the next 2 ½ years. You plan to use credit cards to pay your expenses; luckily you have one with a low (fixed) rate of 14.43% APR (monthly). Which payment option is best for you? Your monthly discount rate is%. (Round to four decimal places.)
You need a new car and the dealer has offered you a price of $20,000, with the following payment options: (a) pay cash and receive a $2,000 rebate, or (b) pay a $5,000 down payment and finance the rest with a 0% APR loan over 30 months. But having just quit your job and started an MBA program, you are in debt and you expect to be in debt for at least the next 2 ½ years. You plan to use credit cards to pay your expenses; luckily you have one with a low (fixed) rate of 15.49% APR. Which payment option is best for you? What is the monthly discount rate ______ For you, what is the present value of option (b) is $_______
You need a new car and the dealer has offered you a price of $20,000, with the following payment options: (a) pay cash and receive a $2,000 rebate, or (b) pay a $5,000 down payment and finance the rest with a 0% APR loan over 30 months. But having just quit your job and started an MBA program, you are in debt and you expect to be in debt for at least the next 2 ½ years. You plan to use credit cards to pay your expenses; luckily you have one with a low (fixed) rate of 15.00% APR (monthly). Which payment option is best for you? Question content area bottom Part 1 Your monthly discount rate is enter your response here%. (Round to four decimal places.)

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