You are finally ready to stop paying rent. You found the house of your dreams but financing it can be tricky. You apply for a $300,000, 15-year mortgage loan (monthly payments). The bank offers the following options:

• 4.5% APR with no points equal payments loan.
• 4% APR with 2 points equal payments loan.

1. Calculate the Effective Annual Interest Rate (EAR) for each one of the options above. Which option should you choose?
2. You complain to the bank that the monthly payment for the two options above is a little too high for you right now (although you are certain you will be able to make much larger payments in the future, once you become CEO at your firm). In response, the bank offers you a 4%, 15-year balloon loan with a monthly payment of only $1,300. Can you build the amortization schedule for this loan? Would you prefer this option to the one you picked in point 1 above? Why?

11 AN Geners Rad Neutral Autobum Wap Test Merge Center Normal Conditional Format as Calculation Formatting - Good Dyplomotory- S.99 Check Cell Delete Format Sami Fad & des Styles FIS linon Loan 300000 OPTIONS Type of loan Mortgage Principal Qucted interest (ADR) Mottom lears) ber of Payments per year Equal Payments with points 300000 OPTION 2 Type of loan Mortgage Principal Quoted interest (ADR) Moyage torm Ivers) Number of Payments per year Points OPTIONS Type of loun a Morteaza principal Quoted interest Motace term years) Number of Payments ON Monthly Payment Monthly Amorest Rate Monthly Payment Monthly interest Rale Monthly Payment Monthly rate FAIR 01-1: Which option should you choose between 1 and ?? Why? 91 ZBUILD THE AMORTIZATION TABLE FOR THE RAION LOAN BELOW USING THE GIVEN FORMAT Loan balance at beginning of local interest Principal Loan principal year mnt 2 payment payment payment balance at mad of year 91 2Would you prefer option to the one you picked in Q11 above? Why? Balloon Loan OPTION 1 Type of Loan Mortgage Principal Quoted Interest (APR) Motgage term (years) Number of Payments per year Points 300000 Equal payments 300000 4.50% 15 OPTION 2 Type of Loan Mortgage Principal Quoted Interest (APR) Motgage term (years) Number of Payments per year Points Equal Payments with points 300000 4% OPTION 3 Type of Loan Mortgage Principal Quoted Interest Motgage term (years) Number of Payments Points 5% 15 o 1300 Monthly Payment Monthly Interest Rate EAIR Monthly Payment Monthly Interest Rate EAIR Monthly Payment Monthly rate EAIR Q1-1: Which option should you choose between 1 and 2? Why? Q1-2: BUILD THE AMORTIZATION TABLE FOR THE BALLON LOAN BELOW USING THE GIVEN FORMAT Loan principal Loan balance at beginning of Total Interest Principal balance at end of year payment payment repayment Payment # year Q1-2: Would you prefer option 3 to the one you picked in Q1-1 above? Why