Martin has borrowed £250,000 to buy a house. The mortgage rate is 5% per year. How much more will his repayments be per month if he chooses a mortgage term of 15 years instead of 25 years? 2) If Martin’s required rate of return is 1% per month, which of the two mortgage terms will he choose? (Hint: you could either use a spreadsheet to work out the present value of the cash flows or you could calculate the present value of the corresponding annuities, but remember you are calculating costs to Martin

Corporate Fin Focused Approach
5th Edition
ISBN:9781285660516
Author:EHRHARDT
Publisher:EHRHARDT
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 34P
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1) Martin has borrowed £250,000 to buy a house. The mortgage rate is 5% per year. How much more will his repayments be per month if he chooses a mortgage term of 15 years instead of 25 years?

2) If Martin’s required rate of return is 1% per month, which of the two mortgage terms will he choose? (Hint: you could either use a spreadsheet to work out the present value of the cash flows or you could calculate the present value of the corresponding annuities, but remember you are calculating costs to Martin)

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