Question
Bernie Madeoff pays $ 240 comma 000 240,000 for a newfour-bedroom 2,400-square-foot home outsideTonopah, Nevada. He plans to make a 20 20 % downpayment, but
Bernie Madeoff pays $240 comma 000
240,000 for a newfour-bedroom 2,400-square-foot home outsideTonopah, Nevada. He plans to make a 20
20% downpayment, but is having trouble deciding whether he wants a 15
15-year fixed rate (6.400
6.400%) or a 30
30-year fixed rate (6.875
6.875%) mortgage.
a. What is the monthly payment for both the 15
15- and 30
30-year mortgages, assuming a fully amortizing loan of equal payments for the life of themortgage?
b. Assume that instead of making a 20
20% downpayment, he makes a 10
10% downpayment, and finances the remainder at 7.125
7.125% fixed interest for 15
15 years. What is his monthlypayment?
c. Assume that thehome's total value falls by25%. If Bernie sells the house at the new marketvalue, what would be his gain or loss on the home andmortgage, assuming all of the mortgage principalremains? Use the same assumptions as in part a.
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