Homeowner will remain in the house for the full term

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Reference no: EM131897017

1. Compute the present value of $500 paid in three years using the following discount rates: 7 percent in the first year, 8 percent in the second year, and 9 percent in the third year. (Do not round intermediate calculations and round your answer to 2 decimal places.)

2. You plan to purchase a house for $157,000 using a 10-year mortgage obtained from your local bank. You will make a down payment of 20 percent of the purchase price. You will not pay off the mortgage early. Assume the homeowner will remain in the house for the full term and ignore taxes in your analysis. a. Your bank offers you the following two options for payment: Which option should you choose? Option 1: Mortgage rate of 6.25 percent and zero points. Option 2: Mortgage rate of 5.85 percent and 2.0 points. b. Your bank offers you the following two options for payment: Which option should you choose? Option 1: Mortgage rate of 6.75 percent and 0.5 point. Option 2: Mortgage rate of 6.5 percent and 1.0 points.

Reference no: EM131897017

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