1. (Comprehensive) You are ready to buy a house, and you have $20,000 for a down payment and closing costs. Closing costs are estimated to be 4% of the loan value. You have an annual salary of $36,000, and the bank is willing to allow your monthly mortgage payment to be equal to 28% of your monthly income. The interest rate on the loan is 6% per year with monthly compounding (.5% per month) for a 30-year fixed rate loan. How much money will the bank loan you? How much can you offer for the house? Bank loan Monthly income = 36,000 / 12 = 3,000 Maximum payment = .28(3,000) = 840 PV = 840[1 1/1.00536]/.005 = 140,105 Total Price Closing costs = .04(140,105) = 5,604 Down payment = 20,000 5,604 = 14,396 Total Price = 140,105 + 14,396 = 154,501 2. You are saving for a new house, and you put $10,000 per year in an account paying 8%. The first payment is made today. How much will you have at the end of 3 years? 10000 PMT, 8 1/Y, O PV, 3 N, CPT FV=-32464 32464*(1+8%)=35061.12 (FV of Annuity Due) 1. (Comprehensive) You are ready to buy a house, and you have $20,000 for a down payment and closing costs. Closing costs are estimated to be 4% of the loan value. You have an annual salary of $36,000, and the bank is willing to allow your monthly mortgage payment to be equal to 28% of your monthly income. The interest rate on the loan is 6% per year with monthly compounding (.5% per month) for a 30-year fixed rate loan. How much money will the bank loan you? How much can you offer for the house? Bank loan Monthly income = 36,000 / 12 = 3,000 Maximum payment = .28(3,000) = 840 PV = 840[1 1/1.00536]/.005 = 140,105 Total Price Closing costs = .04(140,105) = 5,604 Down payment = 20,000 5,604 = 14,396 Total Price = 140,105 + 14,396 = 154,501 2. You are saving for a new house, and you put $10,000 per year in an account paying 8%. The first payment is made today. How much will you have at the end of 3 years? 10000 PMT, 8 1/Y, O PV, 3 N, CPT FV=-32464 32464*(1+8%)=35061.12 (FV of Annuity Due)