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1. Amy is choosing between two apartments, Apartment A is selling at 9 million, and apartment B is selling at 11 million. She can take a 30-year mortgage to finance 70% of the price with an interest rate of 5.145% (APR). Other than the down payment, she needs to pay a total transaction fee (taxes, commission, etc.) equaling 2% of the purchase price. She plans to sell the apartment after 3 years. In the meantime, she does not plan to live in this apartment, and she can rent it out. Apartment A is expected to generate a rent of 8000 per month, and apartment B is expected to generate a rent of 12,000 per month. After 3 years, she expects to sell apartment A for \ 11.5 million or apartment B for \ 13 million, and pre-pay the outstanding balance of her mortgage. Suppose her opportunity cost of capital is 7.2% (that is, she can invest the cash elsewhere and make 7.2% per year in term of APR, monthly compounding). (1) What are her monthly payments for the two apartments? (2pts) (2) What is the NPV if she purchases apartment A? (Hint: for each month, mortgage payment is the cash outflow, and the rent is the cash inflow) (3.5pts) (3) What is the NPV if she purchases apartment B? ((Hint: for each month, mortgage payment is the cash outflow, and the rent is the cash inflow)) (3.5pts) (4) Which apartment should she choose? (1pts) 1. Amy is choosing between two apartments, Apartment A is selling at 9 million, and apartment B is selling at 11 million. She can take a 30-year mortgage to finance 70% of the price with an interest rate of 5.145% (APR). Other than the down payment, she needs to pay a total transaction fee (taxes, commission, etc.) equaling 2% of the purchase price. She plans to sell the apartment after 3 years. In the meantime, she does not plan to live in this apartment, and she can rent it out. Apartment A is expected to generate a rent of 8000 per month, and apartment B is expected to generate a rent of 12,000 per month. After 3 years, she expects to sell apartment A for \ 11.5 million or apartment B for \ 13 million, and pre-pay the outstanding balance of her mortgage. Suppose her opportunity cost of capital is 7.2% (that is, she can invest the cash elsewhere and make 7.2% per year in term of APR, monthly compounding). (1) What are her monthly payments for the two apartments? (2pts) (2) What is the NPV if she purchases apartment A? (Hint: for each month, mortgage payment is the cash outflow, and the rent is the cash inflow) (3.5pts) (3) What is the NPV if she purchases apartment B? ((Hint: for each month, mortgage payment is the cash outflow, and the rent is the cash inflow)) (3.5pts) (4) Which apartment should she choose? (1pts)

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