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A homeowner purchases a property for $500,000. He finances the purchase with an 80% LTV, 30-year fully amortizing GPM carrying a 10% interest rate. An 8% rate of graduation will be applied to monthly payments beginning year 2 and the beginning of year 3, only (payments in years 3 and 4 and on are the same). The homeowner will sell the property after 5 years and does not curtail the loan. Upfront fees amount to 3% of the loan amount, and a soft prepayment penalty of 3% applies.
A. What is the first year’s payment?
B. What is the OLB at the end of year 5?
C. What is the effective cost of the loan?
D. All else equal, would you expect the note rate for an equivalent fully amortizing, constant payment mortgage to be <, > or = to 10%? Explain your answer.
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Upon completion of a capital investment project, what management functions related to it remain to be done? Define and discuss the two main types of cost accounting systems for manufacturing operations. What are their similarities and differences?
If you can earn 8 percent on this account, how much will you have to deposit each year over the next five years to fund the future liability?
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