Question
Jeffrey has decided to use his $50,000 to make a down payment on a $300,000 house. He plans to live in the house for the
Jeffrey has decided to use his $50,000 to make a down payment on a $300,000 house. He plans to live in the house for the next three years while still at university, and then sell it when he graduates. Jeffrey is a client of TD Bank and the bank has offered him a mortgage rate of 4.5% on a three-year term, with an amortization period of 25 years.
Additional info: If Jeffrey rents out two rooms to other students at $500 per room, he only has to pay an additional 383.68 to meet his monthly mortgage payment. The total interest paid to TD bank over the next 3 years is 32,326.99
c. In three years, Jeffrey plans to sell the house for a high enough price to make his house ownership over these three years profitable (i.e., to have a positive NPV). What is the minimum sale price he should accept? Assume that Jeffreys opportunity cost of capital is effective 6% per year. Ignore brokers commission on sale, utility bills, repairs, insurance, etc.
the answer is sale price > 307,121.97. please show how you get to answer
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started