Question 1 Alice planned to buy her dream house that costs $600,000. Alice has savings of $150,000 and is considering two alternative options: Option 1: Investing that $150,000 in an investment for a period of 10 years to 15 years to accumulate enough $600,000 to buy the dream house. She approached 2 investment funds for her choice of investment. Sustainable Fund offers the rate of return of 11.95% pa, compounding weekly. Growing Fund offers return rate of 11.98% pa, compounding monthly. Option 2: Buying her dream house now. Alice needs to immediately use her savings of $150,000 as a deposit and borrow the remainig amount from Green Bank. The current interest rate the bank offers for the first home owner mortgage is 3.5% pa. The standard life of a mortgage in Australia is 30 years. Required: Option 1: Compute the effective annual interest rates (EAR) offered by the funds and advise Alice on which fund she should choose. Option 1: How many years does Alice need to wait until she has $600,000 to buy her dream house if she chooses a Sustainable Fund for her investment? Option 1: If Alice would like to get $600,000 only after 10 years, how much should she put into a Sustainable Fund now? Option 2: Calculate the weekly mortgage payment Alice needs to pay for 30 years, assuming the mortgage interest rate is compounding weekly.

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter2: Using Financial Statements And Budgets

Section: Chapter Questions

Problem 6FPE

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Question 1

Alice planned to buy her dream house that costs $600,000. Alice has savings of $150,000 and is considering two alternative options:

Option 1: Investing that $150,000 in an investment for a period of 10 years to 15 years to accumulate enough $600,000 to buy the dream house. She approached 2 investment funds for her choice of investment. Sustainable Fund offers the rate of return of 11.95% pa, compounding weekly. Growing Fund offers return rate of 11.98% pa, compounding monthly.

Option 2: Buying her dream house now. Alice needs to immediately use her savings of $150,000 as a deposit and borrow the remainig amount from Green Bank. The current interest rate the bank offers for the first home owner mortgage is 3.5% pa. The standard life of a mortgage in Australia is 30 years.

Required:

Option 1: Compute the effective annual interest rates (EAR) offered by the funds and advise Alice on which fund she should choose.
Option 1: How many years does Alice need to wait until she has $600,000 to buy her dream house if she chooses a Sustainable Fund for her investment?
Option 1: If Alice would like to get $600,000 only after 10 years, how much should she put into a Sustainable Fund now?
Option 2: Calculate the weekly mortgage payment Alice needs to pay for 30 years, assuming the mortgage interest rate is compounding weekly.

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