Question
1) Five years ago, the medium housing price at Los Angeles county was $350,000, and it is $540,000 now. How much is the annual compounded
1) Five years ago, the medium housing price at Los Angeles county was $350,000, and it is $540,000 now. How much is the annual compounded growth rate in housing price? (2) In the previous question, if the housing price will increase at the same growth rate in the following 3 years, what will be the medium housing price at Los Angeles county after 3 years? Show your calculations (10 points)
III. You have been given a choice between two retirement policies. Policy A: you will receive equal annual payments of $37,000 at the end of year for the following 20 years, Policy B: you will receive one lump-sum of $500,000 now. (1) At what interest rate would you be indifferent in choosing between the two policies. (2) At what interest rate, will you choose Policy A? At what interest rate will you choose Policy B? (3) If you expect to be able to earn 6% annually on your investment over the next 20 years, which policy should you take? Why? Show your calculations (12 points)
IV. John plans to borrow $400,000 15 years mortgage loan from his bank, which agrees that John should repay the loan in 180 equal end-of-month payments. The annual interest rate is 2.5 %,compounded monthly. (1) What is the amount of each monthly payment? Show your calculation. (2) How much total interest dollar amount will John pay over the 15- year life of the loan? Show your calculation (3) Complete the following loan amortization schedule for the first 6 months and the last month. `Rounding amounts to the nearest dollar (18 points) Month Beginning Balance Monthly Payment Dollar Interest Principal Payoff Ending Balance 1 $400,000 2 3 4 5 6 180
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