Business Homework Solutions
#5327
Purchase of house: evaluate two financing options
You are contemplating the purchase of a house. You are offered two financing choices:
A. Borrow $500,000 on a 30-year term at 9% p.a. with equal monthly payments in arrears, or
B. Borrow the same amount interest-only for 10-years at 8.5% with an up-front fee of $10,000, the full amount of the principal to be repaid at the end of the term.
Either loan can be prepaid without penalty. You only expect to stay in the house for 5 years. If your personal discount rate is 10%, which is the better deal? Ignore taxes.
The Excel worksheet makes the calculations for the two possible loans, and then the narrative concludes which will be preference in the circumstances listed in the problem.
What is this?
By OTA - Overall OTA Rating
Departed OTA
Purchase Cost Now
$2.19 CAD (was ~$59.85)
Included in Download
- Plain text response
- Attached file(s):
- Accounting 5327 Problem 1.xls
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