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You are in the market to purchase a new house. You are able to get financing on the home at 5.25% annually. The term of
You are in the market to purchase a new house. You are able to get financing on the home at 5.25% annually. The term of the loan would be 15 years. The loan would require equal and consecutive payments which is the definition of an annuity. The resulting present value factor for the annuity is 10.20646. The annual loan payments will be $24,000. The real estate agent selling the house tells you that you can get this house for a steal at $250,000. How do you react to this offer? (A) You would be interested because when you compare the selling price of $250,000 to its present value, the house is undervalued. (B) You would be interested because the discount rate is relatively low at 5.25%. Money is relatively inexpensive. (C) You would not be interested because there is no way possible to figure out its relative value in today's dollars given the data. (D) You would not be interested because when you compare the selling price of $250,000 to its present value of $244,955, the house is overvalued
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