1. The present value of the perpetuity which begins in six years (T=6). Which of the following statements is most likely TRUE:

HINT: After using a formula to calculate the value of the perpetuity at T=5, discount by the appropriate number of periods until you reach today (T=0)

a) $6,560

b) $6,888

c) $7,708

d) $8,093

e) $15,426

2. If you try to pay off the mortgage early by making monthly payments of $2,000, how many payments will it take you to have $100k in equity? Note this is the same as asking how many payments will it take you to have 1/3 of the loan is paid off?

a. 106

b. 107

c. 179

d. 180

e. 181

HINT: An amortization table is not time efficient here; use MS Excel or your financial calculator to solve for the number of payments, making sure to round up to the nearest whole payment.

Below are additional details for three different 10 year loans of $500k today:

Loan X:

o fully amortizing fixed interest rate loan

o monthly payments of $5551.03

Loan Y:

o interest only loan

o monthly interest payments of $3333.33

Loan Z:

o $1,500k due as one lump sum in 25 years