Questions 1. [1 mark] How much is the first mortgage payment? [Hint: The first mortgage payment solves for C in the equation: Loan Amount = C AN, where is the loan rate (interest rate), and N is the number of payment periods.] 2. For each scenario, a) [3 mark] What is the balance on the home loan in 9 years, after the 9th mortgage payment has been made? [Hint: Perhaps the simplest way to solve this is to use Excel to calculate the year-by- year balance, where Balance(t+1) = Balance(t) + Balance(t) * InterestRate(t) - Repayment(t+1)] b) [2 marks] What is the year-by-year difference in net cash flows for renting versus buying, assuming that in year 9 the house is sold and the remaining loan balance is repaid? 3. [2 marks] Suppose that any cash not spent on housing costs can be invested at an 6% after- tax return in the stock market. Given your answers to 2(b) above, what is the estimated difference in net wealth for renting versus buying in each of the scenarios? [Hint: For each scenario, calculate the NFV (net future value) of the difference in cash flows in 2(b) using r = 6%.] 4. [2 mark] Supposing you view each scenario as equally likely (i.e., you assign equal probability to each of the three possibilities (i.e., 1/3) occurring in the future), which would you recommend: buying or renting? Why?