The buyer of a piece of real estate is often given the option of buying down the loan. This option gives the buyer a choice of loan terms in which various combinations of interest rates and discount points are offered. The choice of how many points and what rate is optimal is often a matter of how long the buyer intends to keep the property. Darrell Frye is planning to buy an office building at a cost of $984,000. He must pay 10% down and has a choice of financing terms. He can select from a 9% 30-year loan and pay 4 discount points, a 9.25% 30-year loan and pay 3 discount points, or a 9.5% 30-year loan and pay 2 discount points. Darrell expects to hold the building for three years and then sell it. Except for the three rate and discount point combinations, all other costs of purchasing and selling are fixed and identical. (Round your answers to the nearest cent. Use this table, if necessary.) (a) What is the amount being financed? $ (b) If Darrell chooses the 4-point 9% loan, what will be his total outlay in points and payments after 36 months? $ (c) If Darrell chooses the 3-point 9.25% loan, what will be his total outlay in points and payments after 36 months? (d) If Darrell chooses the 2-point 9.5% loan, what will be his total outlay in points and payments after 36 months? $ (e) of the three choices for a loan, which results in the lowest total outlay for Darrell after 36 months? O the 4-point 9% loan
The buyer of a piece of real estate is often given the option of buying down the loan. This option gives the buyer a choice of loan terms in which various combinations of interest rates and discount points are offered. The choice of how many points and what rate is optimal is often a matter of how long the buyer intends to keep the property. Darrell Frye is planning to buy an office building at a cost of $984,000. He must pay 10% down and has a choice of financing terms. He can select from a 9% 30-year loan and pay 4 discount points, a 9.25% 30-year loan and pay 3 discount points, or a 9.5% 30-year loan and pay 2 discount points. Darrell expects to hold the building for three years and then sell it. Except for the three rate and discount point combinations, all other costs of purchasing and selling are fixed and identical. (Round your answers to the nearest cent. Use this table, if necessary.) (a) What is the amount being financed? $ (b) If Darrell chooses the 4-point 9% loan, what will be his total outlay in points and payments after 36 months? $ (c) If Darrell chooses the 3-point 9.25% loan, what will be his total outlay in points and payments after 36 months? (d) If Darrell chooses the 2-point 9.5% loan, what will be his total outlay in points and payments after 36 months? $ (e) of the three choices for a loan, which results in the lowest total outlay for Darrell after 36 months? O the 4-point 9% loan
Chapter18: Accounting Periods And Methods
Section: Chapter Questions
Problem 68P
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Question
Transcribed Image Text:Table 14-1: Monthly Payments to Amortize Principal and Interest per $1,000 Financed
Monthly Payments
(Necessary to amortize a loan of $1,000)
Interest
10
15
20
25
30
35
40
Rate (%)
Years
Years
Years
Years
Years
Years
Years
Years
3.50
18.19
9.89
7.15
5.80
5.01
4.49
4.13
3.87
3.75
18.30
10.01
7.27
5.93
5.14
4.63
4.28
4.03
4.00
18.42
10.12
7.40
6.06
5.28
4.77
4.43
4.18
4.25
18.53
10.24
7.52
6.19
5.42
4.92
4.58
4.34
4.50
18.64
10.36
7.65
6.33
5.56
5.07
4.73
4.50
4.75
18.76
10.48
7.78
6.46
5.70
5.22
4.89
4.66
5.00
18.87
10.61
7.91
6.60
5.85
5.37
5.05
4.82
5.25
18.99
10.73
8.04
6.74
5.99
5.52
5.21
4.99
5.50
19.10
10.85
8.17
6.88
6.14
5.68
5.37
5.16
5.75
19.22
10.98
8.30
7.02
6.29
5.84
5.54
5.33
6.00
19.33
11.10
8.44
7.16
6.44
6.00
5.70
5.50
6.25
19.45
11.23
8.57
7.31
6.60
6.16
5.87
5.68
6.50
19.57
11.35
8.71
7.46
6.75
6.32
6.04
5.85
6.75
19.68
11.48
8.85
7.6
6.91
6.49
6.21
6.03
7.00
19.80
11.61
8.99
7.75
7.07
6.65
6.39
6.21
7.25
19.92
11.74
9.13
7.90
7.23
6.82
6.56
6.40
7.50
20.04
11.87
9.27
8.06
7.39
6.99
6.74
6.58
7.75
20.16
12.00
9.41
8.21
7.55
7.16
6.92
6.77
8.00
20.28
12.13
9.56
8.36
7.72
7.34
7.10
6.95
8.25
20.40
12.27
9.70
8.52
7.88
7.51
7.28
7.14
8.50
20.52
12.40
9.85
8.68
8.05
7.69
7.47
7.33
8.75
20.64
12.53
9.99
8.84
8.22
7.87
7.65
7.52
9.00
20.76
12.67
10.14
9.00
8.39
8.05
7.84
7.71
9.25
20.88
12.80
10.29
9.16
8.56
8.23
8.03
7.91
9.50
21.00
12.94
10.44
9.32
8.74
8.41
8.22
8.10
9.75
21.12
13.08
10.59
9.49
8.91
8.59
8.41
8.30
10.00
21.25
13.22
10.75
9.65
9.09
8.78
8.60
8.49
10.25
21.37
13.35
10.90
9.82
9.26
8.96
8.79
8.69
10.50
21.49
13.49
11.05
9.98
9.44
9.15
8.98
8.89
10.75
21.62
13.63
11.21
10.15
9.62
9.33
9.18
9.08
11.00
21.74
13.78
11.37
10.32
9.80
9.52
9.37
9.28
11.25
21.87
13.92
11.52
10.49
9.98
9.71
9.56
9.48
11.50
21.99
14.06
11.68
10.66
10.16
9.90
9.76
9.68
11.75
22.12
14.20
11.84
10.84
10.35
10.09
9.96
9.88
12.00
22.24
14.35
12.00
11.01
10.53
10.29
10.16
10.08
12.25
22.37
14.49
12.16
11.19
10.72
10.48
10.35
10.29
12.50
22.50
14.64
12.33
11.36
10.9
10.67
10.55
10.49
12.75
22.63
14.78
12.49
11.54
11.09
10.87
10.75
10.69
13.00
22.75
14.93
12.65
11.72
11.28
11.06
10.95
10.90
Transcribed Image Text:The buyer of a piece of real estate is often given the option of buying down the loan. This option gives the buyer a choice of loan terms in which various combinations
of interest rates and discount points are offered. The choice of how many points and what rate is optimal is often a matter of how long the buyer intends to keep the
property.
Darrell Frye is planning to buy an office building at a cost of $984,000. He must pay 10% down and has a choice of financing terms. He can select from a 9% 30-year
loan and pay 4 discount points, a 9.25% 30-year loan and pay 3 discount points, or a 9.5% 30-year loan and pay 2 discount points. Darrell expects to hold the
building for three years and then sell it. Except for the three rate and discount point combinations, all other costs of purchasing and selling are fixed and identical.
(Round your answers to the nearest cent. Use this table, if necessary.)
(a) What is the amount being financed?
$
(b) If Darrell chooses the 4-point 9% loan, what will be his total outlay in points and payments after 36 months?
$4
(c) If Darrell chooses the 3-point 9.25% loan, what will be his total outlay in points and payments after 36 months?
$
(d) If Darrell chooses the 2-point 9.5% loan, what willI be his total outlay in points and payments after 36 months?
(e) of the three choices for a loan, which results in the lowest total outlay for Darrell after 36 months?
O the 4-point 9% loan
O the 3-point 9.25% loan
O the 2-point 9.5% loan
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