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You are considering the purchase of a $ 5 0 0 , 0 0 0 home. You plan to take a 3 0 - year
You are considering the purchase of a $ home. You plan to take a year fixed mortgage after
making a downpayment to avoid PMI. Payments are to be made monthly at the end of the month
and the APR is
What is the monthly payment?
During what month does the principal portion first exceed the interest portion? Are you surprised
by your answer?
How long does it take to pay off your mortgage if you pay an additional $ towards principal
each payment?
How long does it take to pay off your mortgage if you pay an additional amount each month
equal to the current months principal?
Question College planning
Your child was just born and you are planning for hisher college education. Based on your wonderful
experience in Financial Economics you decide to send your child to Hofstra University as well. You
anticipate the annual tuition to be $ per year for the four years of college. You plan on making
equal deposits on your childs birthday every year starting today, the day of your childs birth. No
deposits will be made after starting college. The first tuition payment is due in exactly years from
today the day your child turns no deposit required, ie last deposit is on th birthday Assume
the annual expected return on your investments is over this period.
Calculate the annual deposit. FV deposits PV tuition payments
Calculate the amount needed if only equal annual deposits are made on birthdays inclusive.
FV deposits PV tuition payments as lump sum
Calculate the amount needed if two equal annual deposits are made on birthdays and
Answer part i now assume tuition rises per year.
Answer part i assuming first deposit will be made on your childs st birthday. All other
information is the same. What is the annual tuition payment? How does it compare to part i Is
your answer surprising?
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