A renovator bought a property for $200,000 using a 12 month interest only loan with an annual rate of 4% with monthly compounding. Renovations cost an additional $10,000 a month for the first 6 months, and then the property was sold for $270,000 at the end of the seventh month.

What was the monthly payment on the loan?

How much is owed on the loan at the end of the 7^th month?

What was the annual return from selling the property?

Create a data table with the annual return as the output variable. The column input is the sale price, start with $260,000 and go to $290,000 in increments of $5,000.

Compare these results with the results from the original problem on the exam. In particular, explain why in the data table results from the original amortized loan have a higher return than the interest only loan for a sale price of $260,000 and $270,000.

In order to further investigate this issue, assume that in both problems the property is sold after the third month. Renovation costs remain the same and go all the way to the end of the third month.

Recalculate the info for both problems and then compare the data table results with each other and the data table information from when the sale occurred at the 7^th month.

This comparison should give some insight into what is driving the annual return. Factors to think about: the speed of the renovation, the cost, the sale price, and the method of financing.