1. Ruby wants to buy an $1,200,000 house in San Diego without putting any money down. In other words, she wants to borrow $1,200,000. She approaches several lenders and is left with only one option that includes three distinct fully amortizing loans with monthly payments. The first loan is for 80% of the purchase price with a 30-year term and 4.25% interest rate. The second loan is for 15% of the purchase price with a 20-year term and a 6.75% interest rate. The third loan is for 5% of the purchase price. The third loan has the lowest level lien priority, so the lender wants to be paid back quicker and charges a higher rate. The third loan has a 10-year term and an 9.50% interest rate. A. Calculate the effective cost of the three loans for the full 30-year holding period. (8 points) B. Calculate the effective cost of the three loans for a 20-year holding period. (7 points)

2. An appraiser is looking for comparable sales and finds a property that recently sold for $1,000,000. The appraiser finds that the buyer was able to assume the sellers fully amortizing mortgage which had monthly payments based on a 3.25 percent interest rate. The balance of the loan at the time of sale was $710,000 with a remaining term of 15 years (monthly payments). The appraiser determines that if a $710,000 loan were obtained on the same property, monthly payments at the market rate for a fully amortizing loan would have been 4.50 percent with zero points. A. Assume the buyer expects to benefit from the interest savings on the assumable loan for the entire loan term. What is the cash equivalent value of the property? (8 points) B. Recalculate your answer to part (a) assuming the buyer only expects to benefit from the interest savings for seven years because they will either sell or refinance? (7 points)

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