a) You would like to purchase a house that costs $250,000 and you make a 10% down payment. You borrow the remaining at an APR of 12%, semi-annually compounded, to be repaid in monthly installments for the next 25 years. How much do you pay every month?
Suppose you decide to increase your monthly payment by an additional 1/12th of the present payment (i.e., you divide an additional monthly mortgage payment equally over the 12 months), what is the time required to repay the loan if you make that additional monthly payment every year?
b) Your child was just born and you are planning for his/her college education. Based on your wonderful experience in Finance at Carleton, you decide to send your child to Carleton University as well. You anticipate the annual tuition at that time to be $50,000 per year for the four years of college. You plan on making equal deposits on your child's birthdays for age one through seventeen inclusive to fund their education. Assume the first tuition payment is due exactly 18 years from today and the expected return is 10% APR with quarterly compounding over this period. Calculate the annual deposit.
c) Suppose you are analyzing the following possible cash flows: Year 1 CF = $100; Years 2 and 3 CFs = $200; Years 4 and 5 CFs = $300. The required discount rate is 7%.
i) What is the value of the cash flows at year 5?
ii) What is the value of the cash flows today?
iii) What is the value of the cash flows at year 3?