Computing mortgage payments

Assignment Help Financial Management

Reference no: EM131318816

Computing Mortgage Payments with the Use of Formulas

George and Barbara Shrub would like to purchase a large white house and are evaluating their financing options. Bank A offers a 10-year mortgage at 12% annual interest, compounded monthly, with payments made at the end of each month. Bank B is offering a 10-year mortgage at 13% annual interest, compounded annually, with payments made at the end of each year. The purchase price of the white house is $250,000.

1. Use formulas to compute the following amounts:

(a) The monthly payment for the Bank A mortgage

(b) The annual payment for the Bank B mortgage

2. Which financing alternative would you advise the Shrubs to select?

Reference no: EM131318816

Questions Cloud

There are two risky assets in the financial market : There are two risky assets in the financial market. If an investor decides to invest 40% into A and correlation coefficient between A and B is .4, compute the expected return and standard deviation for the risky portfolio.

Which would you take based on the time value of money : If I were to offer you $5,000 today or $10,000 10 years from now, which would you take based on the time value of money?

An aggressive common stock fund : You start a new job. They give you a variety of investments for your 401K plan. You have 4 choices A money market fund that historically has returned 2.5% per year A long term bond fund with an average annual return of 6% A conservative common stock ..

The growth rate in dividends is expected to be constant : Shark Inc. just paid a dividend of $3.65 on its stock. The growth rate in dividends is expected to be a constant 7 percent per year indefinitely. Investors require a return of 15 percent for the first three years, a return of 13 percent for the next ..

Computing mortgage payments : George and Barbara Shrub would like to purchase a large white house and are evaluating their financing options. Bank A offers a 10-year mortgage at 12% annual interest, compounded monthly, with payments made at the end of each month. The annual payme..

Compute the internal rate of return for each investment : Using the two design options for the Gore pleating machine examined in the discussion session, compute the internal rate of return for each investment. Interpolate the ROR to the nearest 1%, and use the interest tables to determine your answers. Whic..

To build a new inventory storage facility : To build a new inventory storage facility, a company borrows $100,000 from a bank at an annual interest rate of 8%. If the term of the loan is 10 years, what is the annual payment that will be made by the company to the bank assuming compounding inte..

How much interest will he pay over the life of the loan : Larry Davis 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 ba..

What is the company cost of equity capital : David Ortiz Motors has a target capital structure of 35% debt and 65% equity. The yield to maturity on the company's outstanding bonds is 11%, and the company's tax rate is 40%. Ortiz's CFO has calculated the company's WACC as 9.54%. What is the comp..

User Account

All Pages