Case study 2 -Mortgages Mr. and Mrs. Minott and their four children live in their own...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Case study 2 -Mortgages Mr. and Mrs. Minott and their four children live in their own home at 40 Park Place, on which they have a mortgage balance of $2.500,000. As the Minotts reckon that the family has outgrown the property, it has been put up for sale at its current appraised value of $10,250,000. A purchaser has been identified but the proceeds from the sale is not due to be paid to the Minotts until June 30, 2021. In the meantime the Minotts have contracted to purchase a new home at Hill Glades for $25,000, 000, although this property is valued at only $23,000,000. The sale agreement on this property requires a deposit of 20% on signing which took place on February 16, 2021, with the balance which will not be covered by a mortgage, payable in 45 days after signing. Based on their high salaries, Caribbean Building Society have pre-approved the Minotts for a 25-year mortgage of 75% of purchase price or value, whichever is less, up to a maximum of $20,000,000. This will attract an interest rate of 5.50% per annum with monthly compounding and will be disbursed on June 30, 2021. MVBS Ltd, a commercial bank, is offering a bridging loan of up to $26,000,000 for up to 91 days at an interest rate of 8.50% per annum and the Minotts will only use the minimum amount needed of this loan. The outstanding balance on the bridging loan account after the mortgage loan has been applied to it will be repaid from the net proceeds of the sale from the Minot's old house. A closing cost of $1.250.000, which must be paid on signing of the sale agreement, will be associated with purhase of the new home. The Minotts also have savings of $2,250,000 which will be available for use in their new home transactions. Final payment for the new property, possession of both properties and disbursement of the bridging loan will take place on April 1, 2021. The Minotts also plan to use some of the proceeds from the sale of their property to pay off the outstanding principal and interest on the bridging loan and from the balance to make a deposit on a new car on July 2021. The Minotts also plan to use some of the proceeds from the sale of their property to pay off the outstanding principal and interest on the bridging loan and from the balance to make a deposit on a new car on July 2021. The Minotts also have a zero coupon bond with a face value of $14,000,000 ( that means that they will only get $14.000.000 at maturity) that will mature on June 30, 2031, that is, 10 years after the mortgage was disbursed. They are contemplating using all the proceeds from that bond at maturity to pay on their mortgage loan. a. How much cash must the Minotts pay on signing the sale agreement for their new home? (2 Marks) b. How much of the purchase price will be financed by the long-term mortgage? (2Marks) C. How much should they pay on the second deposit? (2 Marks) d. How much equity does the Minotts have in their old house? (2 Marks) When the Minotts move in, what will be their equity in the property, assuming that the value of the new home remains at its current valution? (2marks) f. How much should they borrow if they take a bridge loan? (bearing in mind that they will only use the minimum needed). (3 Marks) e. g. What is the maximum that the Minotts can afford to pay on the new car? (2Marks) h. Use Excel to construct a full amortisation table showing the balance of the loan at maturity. (Upload the Excel worksheet) (4 Marks) 1. In the event that the Minotts decide to use proceeds from the bond immediately it matures to pay off their mortgage, will this provide sufficient funds to do so? How much Interest will they have paid over the period? This question must be manually calculated showing all workings. (4 Marks) J. If the Minotts are planning to keep their new mortgage until maturity, what would be the total Interest payable over the period, assuming that the interest rate remains unchanged? This question must be manually calculated showing all workings. (2 Marks) Case study 2 -Mortgages Mr. and Mrs. Minott and their four children live in their own home at 40 Park Place, on which they have a mortgage balance of $2.500,000. As the Minotts reckon that the family has outgrown the property, it has been put up for sale at its current appraised value of $10,250,000. A purchaser has been identified but the proceeds from the sale is not due to be paid to the Minotts until June 30, 2021. In the meantime the Minotts have contracted to purchase a new home at Hill Glades for $25,000, 000, although this property is valued at only $23,000,000. The sale agreement on this property requires a deposit of 20% on signing which took place on February 16, 2021, with the balance which will not be covered by a mortgage, payable in 45 days after signing. Based on their high salaries, Caribbean Building Society have pre-approved the Minotts for a 25-year mortgage of 75% of purchase price or value, whichever is less, up to a maximum of $20,000,000. This will attract an interest rate of 5.50% per annum with monthly compounding and will be disbursed on June 30, 2021. MVBS Ltd, a commercial bank, is offering a bridging loan of up to $26,000,000 for up to 91 days at an interest rate of 8.50% per annum and the Minotts will only use the minimum amount needed of this loan. The outstanding balance on the bridging loan account after the mortgage loan has been applied to it will be repaid from the net proceeds of the sale from the Minot's old house. A closing cost of $1.250.000, which must be paid on signing of the sale agreement, will be associated with purhase of the new home. The Minotts also have savings of $2,250,000 which will be available for use in their new home transactions. Final payment for the new property, possession of both properties and disbursement of the bridging loan will take place on April 1, 2021. The Minotts also plan to use some of the proceeds from the sale of their property to pay off the outstanding principal and interest on the bridging loan and from the balance to make a deposit on a new car on July 2021. The Minotts also plan to use some of the proceeds from the sale of their property to pay off the outstanding principal and interest on the bridging loan and from the balance to make a deposit on a new car on July 2021. The Minotts also have a zero coupon bond with a face value of $14,000,000 ( that means that they will only get $14.000.000 at maturity) that will mature on June 30, 2031, that is, 10 years after the mortgage was disbursed. They are contemplating using all the proceeds from that bond at maturity to pay on their mortgage loan. a. How much cash must the Minotts pay on signing the sale agreement for their new home? (2 Marks) b. How much of the purchase price will be financed by the long-term mortgage? (2Marks) C. How much should they pay on the second deposit? (2 Marks) d. How much equity does the Minotts have in their old house? (2 Marks) When the Minotts move in, what will be their equity in the property, assuming that the value of the new home remains at its current valution? (2marks) f. How much should they borrow if they take a bridge loan? (bearing in mind that they will only use the minimum needed). (3 Marks) e. g. What is the maximum that the Minotts can afford to pay on the new car? (2Marks) h. Use Excel to construct a full amortisation table showing the balance of the loan at maturity. (Upload the Excel worksheet) (4 Marks) 1. In the event that the Minotts decide to use proceeds from the bond immediately it matures to pay off their mortgage, will this provide sufficient funds to do so? How much Interest will they have paid over the period? This question must be manually calculated showing all workings. (4 Marks) J. If the Minotts are planning to keep their new mortgage until maturity, what would be the total Interest payable over the period, assuming that the interest rate remains unchanged? This question must be manually calculated showing all workings. (2 Marks)
Expert Answer:
Answer rating: 100% (QA)
a The cash payment required on signing the sale agreement for the new home can be calculated as follows Purchase Price 25000000 Deposit 20 25000000 020 5000000 The Minotts must pay a cash deposit of 5... View the full answer
Related Book For
Essentials of Business Analytics
ISBN: 978-1285187273
1st edition
Authors: Jeffrey Camm, James Cochran, Michael Fry, Jeffrey Ohlmann , David Anderson, Dennis Sweeney, Thomas Williams
Posted Date:
Students also viewed these general management questions
-
A mortgage balance of $23 960 is to be repaid over a 7-year term by equal monthly payments at 6.8% compounded semi-annually. At the request of the mortgagor, the monthly payments were set at $440....
-
A property development agreement valued at $45 000 requires annual lease payments of $15 000. The first payment is due five years after the date of the agreement and interest is 11% compounded...
-
It has been said that a society with a high savings rate is a society with a high standard of living. What is the link (if any) between saving and a relatively high standard of living?
-
Ancient Indians did not believe in war and violence when it came it an expansion of political territory but relied on peaceful negotiation and strategy. Please explain your views on this quote with...
-
Are the required conditions satisfied for Exercise 16.15?
-
Examine the extent to which it is possible for a multinational organisation to specify an optimal transfer pricing system.
-
How do job designs influence motivation?
-
Big Bath Emporium (BBE), a private company based in Toronto, is the city's largest manufacturer and vendor of bathtubs, showers, and sinks. The company sells products direct to consumers, and also...
-
(a). Copy and complete the table of values for the relation y=-x+x+2 for -3x3 X -3 -2 -1 0 1 2 y -4 2 3 4 (b) Using scales of 2cm to 1 unit on the x- axis and 2cm to 2 units on the y-axis, draw a...
-
Jurisdiction B's tax system consists of a 6.5 percent general sales tax on retail goods and selected services. Over the past decade, the average annual volume of sales subject to this tax was $500...
-
New Century Energy Shares plans to raise $50 billion in new capital by issuing $20 billion in debt and the rest in equity. The expected yield to maturity on its new debt is 5%, and the firms tax rate...
-
If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by 20%, and all other factors remain the same, what will the outcome be for operating income?
-
Pharoah Burgers operates and franchises fast-food restaurants specializing in grilled hamburgers and chicken sandwiches. The 2018 and 2019 income statements are as follows (in $000s): Year Ended...
-
Read DeCSS Code on the Internet; Is it Protected Speech? By: G. Keith Roberts Do you agree that computer code and programs can merit protection under First Amendment? Why? DeCSS Code on the Internet:...
-
(Shortest Maximum Edge Problem) In the shortest path problem, we defined the length of a path as the sum of the edges' lengths: L(P) := l(e). CEP This was useful for finding the shortest route in...
-
A number of limits arising from the strict separation of judicial power have been recognized at the Commonwealth level. The existence and scope of these limits reflect the mix of political and legal...
-
Anna Garden recently opened her own basketweaving studio. She sells finished baskets in addition to selling the raw materials needed by customers to weave baskets of their own. Unfortunately, owing...
-
Find a polar equation for the curve represented by the given Cartesian equation. 4y 2 = x
-
Refer to the scenario described in Problem 19 and the file HousingBubble. a. For the following substeps, consider the Pre-Crisis worksheet data. Partition the data into training (50 percent),...
-
Refer to the scenario described in Problem 10 and the file BlueOrRed. Partition the data into training (50 percent), validation (30 percent), and test (20 percent) sets. Fit a classification tree...
-
Refer to Problem 15. Use the model developed there to construct an efficient frontier by varying the maximum allowable variance from 20 to 60 in increments of = and solving for the maximum return for...
-
What does a low average reserves per well ratio indicate?
-
Lomax Company reported the following costs on its financial statements (in thousands): REQUIRED: Using the reserve disclosure for Lomax Company in problem 13 and the data presented in this problem,...
-
Lomax Companys Statement No. 69 disclosures included the following information: REQUIRED: Using the information for Lomax Company in problems 13, 14, and 15 and in this problem: a. Compute the value...
Study smarter with the SolutionInn App