Reference no: EM133035037

Question 1 - The Kerwins are selling their home in order to assist in providing their input for a house they have decided to purchase for $16,000,000. The sale agreement on the house being purchased requires a deposit of 20 percent plus closing costs of $800,000 to be paid on signing on August 31, 2018. The balance of the purchase price (second deposit) that is not being financed by mortgage loan is due on September 30, 2018, the date on which the sale is to be closed.

Currently, the Kerwins have a mortgage balance of $2,000,000 on their old home, which has been appraised at $8,000,000. A purchaser has been identified but the proceeds from the sale of this property will not be received until December 30, 2018.

The Kerwins have been pre-approved by Local Building Society to qualify for a 25-year mortgage of $!1,000,00 on the new house. This will attract an interest rate of 5.50% per annum with monthly compounding. In the mean time RBNC Bank Ltd, a commercial bank , is offering a bridging loan at a rate of 8.50% per annum and the Kerwins will only use the minimum amount needed of this loan. The Kerwins also have savings of $250,000.

a. How much cash must the Kerwins pay on signing the sale agreement for their new home?

b. How much should they pay on the second deposit?

c. How much equity does the Kerwins have in their old house?

d. How much should they bon-ow if they take a bridge loan?

e. Use an amortisation table to show what the balance would be at the end of the first three months on the Kerwins new mortgage loan.

f. If the Kerwins are planning to keep their new mortgage loan for fifteen years, what would be the total interest payable over the period?

Question 2 - Just as the Marcottes finished planning and organizing their finances, the transmission on Mrs. Marcotte's car failed. The loan value of the car is $2500. They now have some things to consider. Should they buy a new car and get another loan? Should they buy a used car, or should they keep the car and pay for the repairs? In order to finance the car, the Marcottes have several options:

1. They can get a new short-term loan from their bank

2. They can use their credit card with an APR of 17%

3. They can deduct the money from their checking account, and pay cash for the repairs

4. They can get a home equity loan

The Marcottes checking account requires a $750 minimum balance. The bank charges an $8 monthly fee if they do not maintain at least a $750 balance. They currently have about $3000 in their account. Monthly phone, mortgage, and insurance bills cost around $1500, and their due dates are quickly approaching.

a. What are the Marcotte's opportunity costs for each financing option?

b. What do you recommend they do, and why?

c. Considering the five C's of credit management, would you extend more credit to the Marcottes? Why or why not?

Question 3 - Ford Motor Company currently offers incentives on any motor car of 4.9% Annual Percentage Rate (APR) financing for 60 months or a $1000 cash back if purchased using alternate financing. If the car you wish to purchase is costing $25,000 and your credit union is willing to lend you the monies at 6.9 percent APR with the cash back, what will your monthly payment be under the two options? Which option would you choose?