The Lyns live in their own home at 40 Cavin Ave, on which they have a mortgage balance of

$2,000,000. This property has been appraised at $8,500,000 and is now up for sale at its current market value. A purchaser has been identified but the proceeds from the sale is not due to be paid to the Lyns until November 30, 2020.

In the meantime the Lyns have contracted to purchase a new home at Wex Haven for

$17,000, 000, although this property is valued at only $16,000,000. The sale agreement on this property requires a deposit of 20% on signing which will take place on June 1, 2020, with the balance which will not be covered by a mortgage, payable in 30 days after signing.

Based on their high salaries, North Caribbean Building Society have pre-approved the Lyns for a 25-year mortgage of 75% of purchase price or value, whichever is less, up to a maximum of $20,000,000. This will attract an interest rate of 5.50% per annum with monthly compounding and will be disbursed on September 30, 2020.

New World Bank Ltd, a commercial bank , is offering a bridging loan of up to $17,000,000 for 120 days at an interest rate of 8.50% per annum on the reducing balance and the Lyns will only use the minimum amount needed of this loan. A closing cost of $450,000, which must be paid on signing of the sale agreement, will be associated with purchase of the new home.

The Lyns also have savings of $ 1,450,000 which will be available for use in their new home

transactions. Final payment for the new property, possession of both properties and disbursement of the bridging loan will take place on August 1, 2020. The Lyns also have a bond with a face value of $10,000,000 that will mature on September 29, 2030.

a. How much cash must the Lyns pay on signing the sale agreement for their new home?

b. How much of the purchase price will be financed by the long-term mortgage?

c. How much should they pay on the second deposit?

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d. How much equity does the Lyns have in their old house?

e. When the Lyns move in, what will be their equity in the property, assuming that the

value of the new home remains at its current valuation?

f. How much should they borrow if they take a bridge loan? (bearing in mind that they

will only use the minimum needed)

g. How much interest will they pay on the bridging loan for the period August 1 to

November 30, 2020?

h. Use Excel to construct a full amortisation table showing the balance of the loan at

maturity.

i. In the event that the Lyns decide to use proceeds from the bond immediately it

matures to pay off their mortgage, will they have sufficient funds to do so? How much

interest will they have paid over the period? This question must be manually

calculated showing all workings.

j. If the Smiths are planning to keep their new mortgage until maturity, what would be

the total interest payable over the period, assuming that the interest rate remains

unchanged? This question must be manually calculated showing all workings.