Background: 2 houses are for sale. House A costs $1M, House B costs $1.6M. House B is in a better school district. Assumptions: - House A & House B are identical - All other costs are identical (taxes, trash collection, etc.) - There is no property appreciation, etc. - If you buy House A you "need" to put your kids in private school - Current mortgage interest rates are at a historically low 3% APR, compounded monthly - The typical mortgage is for 30 years, paid monthly - Private school costs $20,000/yr per child and is paid at the end of each full year - Every kid's birthday is around the first day of school so when they turn 5 they will start school and continue until they're 18 (13 yrs) - You currently have 2 kids. (Kid 1 is 5 yrs old, Kid 2 is 2 years old) - You are putting $320K down to reduce the amount you have to take a loan on. Answer the following questions: A) Draw a cashflow diagram for both houses and school costs. (for all 30 years of the mortgages) B) What is the monthly mortgage for each of the two houses? (assuming a 30 year mortgage) C) How much would the private school education of the kids cost if paid for today? (using the interest rates above) D) What is the difference in Present Worth (today's cost) between House A+Private School and House B? E) For House A only: If you have to pay 1/12th of the school's cost each month a kid is in school: How much would your monthly mortgage and education cost during the months you have all kids in school? (I want to know: how much money do you spend per month on mortgage and education. Is that more or less than the monthly cost for House B?) F) How does the present worth of House A change if the cost of private school is an geometric gradient at 4%? G) What is the present worth of House A + private school (not as a gradient) and the present worth of House B if you sell the houses as soon as the last kid turns 18? (Using the monthly mortgage values from earlier (but for a shorter period) and private school costs calculate the present worth of both options) This option would be the same as if the parents sell the house and move to a smaller condo after their children graduate and leave home.