Question
Drake is looking to purchase a 10 million dollar mansion using the Citizens Bank of Toronto (CBT) as his lender, as the CBT advertises a
Drake is looking to purchase a 10 million dollar mansion using the Citizens Bank of Toronto (CBT) as his lender, as the CBT advertises a competitive APR (annual percentage rate) of 12% compounded monthly for a 15-year fixed-rate home mortgage. For CBT to provide Drake with the 10 million dollars today, CBT requires a down payment of at least 5%; otherwise private mortgage insurance at a cost of $1000 must be included in the recurring monthly payment. Neglecting property taxes, home owners association fees, and other misc. disbursements
a) What is the monthly recurring payment if Drake supplies a 5% down payment today?
b) What is the future worth of the house in 15 years, assuming an interest rate of 2% per year?
c) Alternatively, Drake can deposit the 5% down payment amount in a mutual fund that accumulates interest at 2.5% per month, compounded quarterly. If the resell value of the house in 15 years is equal to the value determined in (b), is Drakes money better spent investing in the Toronto mansion or the aforementioned mutual fund?
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