You have decided to buy a high-end apartment, priced approximately $1,500,000.

Standard Homes offers a standard amortised mortgage loan with a down payment of $150,000 (paid on the day of purchase of the apartment) and the balance is financed by a 7% p.a. fixed interest (compounded monthly) home loan with a term of 30 years

Floating Real Estate offers you a deal with ABC Bank for a mortgage with a down payment of $200,000 (paid on the day of purchase of the apartment) and the balance financed by a 6.5% p.a. fixed interest (compounded quarterly) mortgage with a term of 20 years with quarterly payments (first payment is paid on the day of purchase of the apartment). Unfortunately, this fixed interest rate will last only three years and then the rate will be variable for the remainder of the mortgage. ABC Bank estimate the variable rate will be 7.5% at the beginning of year 4. For the purpose of your calculation this variable rate is assumed to remain constant over the remaining life of the mortgage.

Bizarre Properties owns a finance company which offers you a mortgage with a down payment of $100,000 (paid on the day of purchase of the apartment). The set up fees with this mortgage are a little bit cheaper at $3000. You only need to pay a lump sum of $6,000,000 at the end of year 20.

Investment Account: You also have an investment asset that pays 8% p.a., compounded weekly. You decide to use this account to handle the loans.

1. Calculate the monthly payment on Standard Homes loan and quarterly payments on Floating Real Estate deal.

2. a. Rank these financing options in order of attractiveness using the TWO valuation methods: (1) Internal Rate of Return (IRR), and (2) Net Present Value (NPV). (Hint: Think about handling interest rates with different compounding frequency, fees, and down payments).

b. Imagine your investment account now pays 10% p.a., 7% p.a., 6% p.a., or 0% p.a. (all compounded weekly). Does your final decision change? Provide the rankings in each of the scenarios accordingly.