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Your small consulting firm has started to pay off and youve decided to finally build the house of your dreams. Your mortgage broker has quoted

Your small consulting firm has started to pay off and youve decided to finally build the house of your dreams. Your mortgage broker has quoted you a semi-annually compounded APR of 4.1%. You are planning to make payments bi-monthly (twice a month) for 25 years.

  1. What is the effective annual rate (EAR) of this mortgage?
  2. What is the bi-monthly rate of this mortgage?
  3. If you have saved up 200,000 for a down payment, and you can afford a mortgage payment of $2,000 every two weeks, how much can you afford to spend on your house?
  4. If you decide to build an even bigger house after 10 years, how much principal will still be owing to the bank? Hint: Find the remaining balance after 10 years of payments.

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