Frank Stapleton pays 406,000 for a four-bedroom bungalow on the outskirts of Edinburgh, Scotland. He plans to

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Frank Stapleton pays £406,000 for a four-bedroom bungalow on the outskirts of Edinburgh, Scotland. He plans to make a 20% down payment but is having trouble deciding whether he wants a 15-year fixed rate (3.650%) or a 30-year fixed rate (4.565%) mortgage.

a. What is the monthly payment for both the 15- and 30-year mortgages, assuming a fully amortizing loan of equal payments for the life of the mortgage? Use a spreadsheet calculator for the payments.

b. Assume that instead of making a 20% down payment, he makes a 15% down payment, finances the remainder at 5.785 % fixed interest for 15 years. What is his monthly payment?

c. Assume that the bungalow’s total value falls by 30%. If Frank sells the house at the new market value, what will be his gain or loss on the home and mortgage, assuming all the mortgage principal remains? Use the same assumptions as in part (a).

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Multinational Business Finance

ISBN: 9781292445960

16th Global Edition

Authors: David Eiteman, Arthur Stonehill, Michael Moffett

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