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Assume that inflation is 2.4% APR, compounded monthly 1. a. You are considering purchasing a new home. Your bank offers you a 30-year fixed rate
Assume that inflation is 2.4% APR, compounded monthly 1. a. You are considering purchasing a new home. Your bank offers you a 30-year fixed rate mortgage at 4.8% APR, compounded monthly. You are willing to pay as much as $4,000 per month toward your mortgage. What is the maximum house price you can afford? [8] b. If you are only willing to pay $4000 a month over 20 years instead of 30 years, how does the price of the house you can afford change compared to the price in your previous answer? Explain [6] c. Sometimes, putting more money down to buy a house allows for a smoother sale process and/or a lower mortgage rate. Instead of borrowing to buy a house now you decide to wait and build up your savings to put an extra $100,000 down. How long will it take you to save $100,000 if you set aside $4,000 per month and your discount rate is 12%, compounded monthly? [4]
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