TV Problem 1: Basic Financial Calculations 30 points You just graduated and got a job as a financial advisor at Fidelity. You have decided to buy your first house. The house will cost $300,000 and requires a down payment of 20%, which means you need to pay $60,000 with cash and can borrow the remaining $240,000 from the bank. Therefore, you need to first save up until you have $60,000 then start a mortgage loan with the bank with the amount of $240,000. You decide to spend 3 years (36 months) to save up the $60,000. a) Your savings investment account earns a return of 7.2% APR (0.6% monthly), and you decide to save the same amount at the end of each month. How much do you have to save each month so you can save up $60,000 in 3 years (36 months)? 8 points Now you can apply for a 30-year (360 months) mortgage in the amount of $240,000. The mortgage rate is 3.6% APR (Monthly Rate = 3.6%/12 = 0.3%). b) How much do you have to pay each month (equal amount) for this mortgage? 8 points c) With the amount you calculated from (b), how much principal balance do you still owe right after you pay your 15th monthly payment? (if you cannot figure out part (b), assume the monthly payment is $1100 for the calculation) 9 points d) If you decide to pay the $1200 each month for this mortgage, and everything else stays the same, how soon can you pay it off? (Hint: it should be fewer than 360 months) 5 points $ S S 300,000 60,000 240,000 0.60% 36 1 2 3 House Price 4 To save 5 To borrow 6 7 8 a) 9 Monthly Saving Rate 10 Number of Months 11 12 Monthly Saving Amount 13 14 15 b) 16 Mortgage amount 17 Monthly mortgage rate 18 Length of mortgage (months) 19 20 Monthly Mortgage Payment 21 22 $ 240,000 0.30% 360 23 c) Balance Balance Payment Interest Payment Principle payment 24 Months 25 1 26 2 27 3 28 4 29 5 30 6 31 7 32 8 33 9 34 10 35 11 36 12 37 13 38 14 39 15 40 16 41 421 43 d) 44 New Monthly Payment 45 46 Time to pay off the loan (months) 47 48 49 50 1200