Lucinda Lacy purchased a house today for $110,000 by making a down payment of $15,000 and paying closing costs of:

Loan origination fee 1% of purchase price

Appraisal fee $350

Survey fee 300

Attorney fee 400

Processing fee 450

Escrow fee 300

Other misc. costs 750

Lucinda has a 6.5% APR, compounded monthly loan for 15 years. Her taxes and insurance are $392 per month. Lucinda has an estimate for a $16,000 firm, fixed price contract to remodel the house and this expense will be equally distributed over the period of her ownership. After remodeling, she estimates that she could sell the house for $150,000. Her selling expenses would be 6.5% sales commission plus $1,500.

Assignment

1. Determine manually, by trial and error, Lucindas rate of return, if she owns the house for 6 months. Show the manual calculations, including the ball-park method.

Note: To get full credit, you must show ALL handwritten manual calculations (including the value of the factors) of how you got the ROR in #1. (10 Points)

2. Prepare an Excel Amortization chart that shows the first six months payments. (4 points)

3. Prepare an EXCEL spreadsheet to determine Lucindas rate of return if she owns the house for 6 months. (5 points)

4. Use the Excel spreadsheet to determine the ROR if Lucinda keeps the house for 6 months and the selling price is $145,500 instead of $150,000. (3 points)

5. Use the Excel spreadsheet to determine the ROR if the sales price is $150,000 and the repairs take longer than expected and Lucinda keeps the house for 12 months before selling and the remodeling contract is for 12 months instead of 6. (3 points)