A home builder is offering $100,000 oans for his homes at 9 percent for 25 years Monthly pay ments are based on current market rates of 9.5 percent and are to be fully amortized over 25 years. The home would normally sel for $110.000 without any special financing.

a. At what price should the builder sell the homes to earn, in effect, the market rate of interest on the loan? Assume that the buyer would have the loun for the entire term of 25 years.

b. How would your answer to part

(a) change if the home is resold after 10 years and the lom repaid.

AppendixLO1