Assignment-10

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School

New York Institute of Technology, Westbury *

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3211

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Finance

Date

Jan 9, 2024

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pdf

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Uploaded by DrTitanium9231

Real Estate Division

View Assignment Aman Preet Singh Student No: 4304704 Course: Real Estate Trading Services Licensing Course 2023 Assignment No: 10 You have submitted this assignment on 2023-09-27 . Green border - Questions answered correctly. Red border - Questions answered incorrectly. If you would like to print your assignment questions for future reference, you can do so by clicking the button below: Print this assignment Question 1 Which of the following statements regarding constant payment mortgages is TRUE? There are only three basic financial components in all constant payment mortgages: amortization period, nominal rate of interest, and the loan amount. Constant payment mortgages are repaid by equal and consecutive instalments that include principal and interest. If a mortgage payment frequency and interest rate compounding frequency are both monthly, an interest rate conversion is required for mortgage finance calculations. At the end of the amortization period, a constant payment mortgage's future value is always equal to 10% of the loan's face value. Correct Answer: 2 Option (2) is correct because constant payment mortgages are repaid by equal periodic payments that occur in consecutive instalments including the principal amount and interest. Option (1) is incorrect because there are four basic financial components in all constant payment mortgages: loan amount, nominal rate of interest, amortization period, and payment. Option (3) is incorrect because when the mortgage payment frequency and interest rate compounding frequency are the same (monthly in this case), an interest rate conversion is NOT required for mortgage finance calculations. Option (4) is incorrect because at the end of the amortization period, a constant payment mortgage's future value is equal to zero. This is because constant payment mortgages are always completely paid off at the end of the amortization period. Question 2 A borrower is considering mortgage loans from two different lenders. Lender A will loan funds at a rate of j = 8.5% and Lender B will loan funds at a rate of j = 8.6%. Which of the following represents the lowest cost of borrowing? j = 8.784900% with Lender B j = 8.839091% with Lender A j = 8.680625% with Lender A j = 8.947213% with Lender B 2 12 1 1 1 1 Go to My Courses Page

Correct Answer: 3 Option (3) is correct because Option (3) with Lender A has the lowest effective annual interest rate: (j = 8.680625%) and represents the lowest cost of borrowing. To compare rates, it is necessary to convert each rate into its equivalent effective annual rate and then compare from there. PRESS DISPLAY Lender A 8.5 NOM% 8.5 2 P/YR 2 EFF% 8.680625 Lender B 8.6 NOM% 8.6 12 P/YR 12 EFF% 8.947213 THE NEXT FOUR (4) QUESTIONS REQUIRE YOU TO COMPLETE THE FOLLOWING TABLE: Loan Loan Amount Interest Rate (semi-annual compounding) Amortization Period (years) Monthly Payment A $180,000 j = 5.85% 25 years ? B $230,000 j = 6.5% ? $1,475.00 C ? j = 4.75% 20 years $822.00 D $350,000 ? 25 years $1,692.00 Question 3 Calculate the monthly payment for Loan A, rounded to the nearest cent. $1,093.79 $1,227.72 $1,135.65 $1,300.34 Correct Answer: 3 Option (3) is correct because the monthly payment is $1,135.65. Since the payments are monthly, the number of compounding periods (N) must also be in months. The given nominal rate with semi-annual compounding must first be converted to an equivalent nominal rate with monthly compounding. Then the payment can be calculated. PRESS DISPLAY 5.85 NOM% 5.85 2 P/YR 2 EFF% 5.935556 12 P/YR 12 NOM% 5.779952 180000 PV 180,000 12 × 25 = N 300 0 FV 0 PMT –1,135.65176 Question 4 Calculate the amortization period for Loan B. Between 20 and 25 years Between 25 and 30 years Between 30 and 35 years More than 35 years 1 2 2 2

Correct Answer: 2 Option (2) is correct because the amortization period is between 25 and 30 years (approximately 28 years). Since the payments are monthly, the given rate of j = 6.5% must first be converted to an equivalent j rate. Then, calculate the amortization period, expressed in months, and convert it into years. PRESS DISPLAY 6.5 NOM% 6.5 2 P/YR 2 EFF% 6.605625 12 P/YR 12 NOM% 6.413688 230000 PV 230,000 1475 +/– PMT –1,475 0 FV 0 N 336.227297 ÷ 12 = 28.018941 Question 5 Calculate the loan amount for Loan C, rounded to the nearest dollar. $127,700 $144,857 $132,211 $155,680 Correct Answer: 1 Option (1) is correct because the loan amount is $127,700, rounded. The given rate of j = 4.75% must first be converted to a j rate as the loan calls for monthly payments. Then the loan amount can be calculated. PRESS DISPLAY 4.75 NOM% 4.75 2 P/YR 2 EFF% 4.806406 12 P/YR 12 NOM% 4.703666 20 × 12 = N 240 822 +/– PMT –822 0 FV 0 PV 127,700.061259 Question 6 Calculate the nominal rate per annum, with semi-annual compounding, for Loan D. 2.698064% 3.197331% 4.229764% 5.562796% 2 12 2 12

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