No need to calculate IRR

Chapter 8 Investment Decision kules You have just purchased a house for $500,000 that is located very close to the universit you attend. You plan to put $100,000 down and borrow $4 00,000. You need to decide which mortgage deal to take. To find out what your choices are, go to www.bankrate.com a select the appropriate buttons to get a quote for a 30-year fixed rate mortgage on a n purchase (not a refinancing). Assume your FICO score is very high and you are looking ew a zero point mortgage. Find the best coupon rate on a mortgage that requires payin that the rate on this mortgage is your cost of capital the NPV of switching from the no-fee g no upfront fees or points. We will refer to this mortgage as the no-fee mortgage and assu ating mortgage to each of the top six mortgages listed You are going to make the decision about which mortgage to consider by calcul (sorted by their coupon). To calculate the NPV of this decision, calculate the differenc payments today, and over the life of the mortgage, by subtracting the alternative mortgage payments from the no-fee mortgage payments and calculating the NPV. For good measure calculate the IRR as well1.10 Assume that you will be living in the house for the next 30 years for certain and you will never repay the mortgage early. Which mortgage should you undertake? Do the NPV and IRR rules agree? amount will increase by these charges. Repeat the above calculations mortgage you should choose if you have a long horizon versus a shorter horizon? the largest NPV and plot the NPV profile Next, assume that the bank will allow you to borrow any fees and points, so the loan Finally, repeat the calculations assuming that you will repay the outstanding balance Of course, the choice of cost of capital will vary by individual. Because your cost of on the mortgage after 5 years, using the same cost of capital. What can you say about which capital might be different to the one used above, for both horizons, pick the option with Chapter 8 Investment Decision kules You have just purchased a house for $500,000 that is located very close to the universit you attend. You plan to put $100,000 down and borrow $4 00,000. You need to decide which mortgage deal to take. To find out what your choices are, go to www.bankrate.com a select the appropriate buttons to get a quote for a 30-year fixed rate mortgage on a n purchase (not a refinancing). Assume your FICO score is very high and you are looking ew a zero point mortgage. Find the best coupon rate on a mortgage that requires payin that the rate on this mortgage is your cost of capital the NPV of switching from the no-fee g no upfront fees or points. We will refer to this mortgage as the no-fee mortgage and assu ating mortgage to each of the top six mortgages listed You are going to make the decision about which mortgage to consider by calcul (sorted by their coupon). To calculate the NPV of this decision, calculate the differenc payments today, and over the life of the mortgage, by subtracting the alternative mortgage payments from the no-fee mortgage payments and calculating the NPV. For good measure calculate the IRR as well1.10 Assume that you will be living in the house for the next 30 years for certain and you will never repay the mortgage early. Which mortgage should you undertake? Do the NPV and IRR rules agree? amount will increase by these charges. Repeat the above calculations mortgage you should choose if you have a long horizon versus a shorter horizon? the largest NPV and plot the NPV profile Next, assume that the bank will allow you to borrow any fees and points, so the loan Finally, repeat the calculations assuming that you will repay the outstanding balance Of course, the choice of cost of capital will vary by individual. Because your cost of on the mortgage after 5 years, using the same cost of capital. What can you say about which capital might be different to the one used above, for both horizons, pick the option with