Reference no: EM13861180
Please help me with the areas in bold below but if you can assist on the entire problem and explain it in detail that would be great :)
On January 2013, Professor Xin buys a house. Here is the information
Price = 250,000
LTV (loan to value) = 80%
Interest Rate = 8%
Other cost = 4%
1. What is the effective interest rate?
The monthly payment is : 1,467.53
If PV = 192000, PMT = -1467.53, n = 360
Solve for i = 8.44
2. If from January 2013, Professor Xin plans to sell his house after 15 years. What is the effective interest rate for Professor Xin in Jan2013?
PV = 192,000
FV = -153,563.12
PMT = -1,467.53
N = 180
Solve for i = 8.509
3. From January 2013, after 8 years, the market interest rate is 7.5%, do you suggest Professor Xin to refinance his house (if the bank agrees to refinance for 22 years, and charge 4% of cost for refinance)?
Here is the calculation:
After 8 years (Dec 2020), the balance is 182,035.40 <= (how do you calculate this number?)
I = 7.5, n = 22*12 = 264. We get monthly payment
1,409.88 (How does 182,035.40 affect this calculation? Is it FV or PV?)
The real money Professor Xin gets from the bank:
182,035.40 * 96% = 174,754
We can get the effective interest rate
PV = 174,754
PMT = -1,409.88
N = 22 * 12 = 264
Solve for i = 8.004 which is greater than 8 %
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