Ann would like to buy a house.

It costs $2,500,000.

Her down payment will be $50,000.

She will take out a mortgage for the remainder.

It will be a 30 year, fully amortizing, FRM, with constant monthly payments and monthly compounding.

The annual interest rate is 4.50%.

She will pay $5,000 in closing costs at origination.

She will also pay 1.75% of the balance in buy-down points at origination.

Note: the home is bought and the loan is taken in month 0, the first payment is due in month 1.

In the spreadsheet where it says cash inflow, outflow and net cash flow you should only take into account cash flow related to the mortgage.

6. Assume Ann will make the required monthly payment every month for 30 years.

(6.a) How much home equity will Ann have after 10 years (120 months) of payments under each of the four scenarios?

(6.b) After 30 years?

Scenario	HPA	Home Equity in 10 Years	Home Equity in 30 Years
Optimistic	4.50%
Base	2.50%
Pessimistic	0.00%
Very Bad	-6.00%