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Activity 2 You are buying a house for $800,000 and the bank is going to...

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Finance

Activity 2

You are buying a house for $800,000 and the bank is going to lend you 80% of the purchase price. The money is to be borrowed over a 25-year term and an interest rate of 8%p. a compounding monthly is being charged. Repayments have been calculated to be $4,939.62.

a) Draw a timeline showing all FIVE variables and cashflow direction (+ or -)

After 7 years (18 years remaining) the bank increases the interest rate to 9%p.a compounding monthly.

b) Assuming your payments DO NOT change, which variable will be affected and how?

Prove your answer using calculations.

Hint - Two steps are required

Step 1) calculate how much money is still owed to the Bank.

Step 2) ?

Activity 3

You have the choice of buying an investment policy for $410,000 today, that pays $20,000 per year forever. The interest rate in the market is currently 5%p.a. Would you invest and why?

How much should you receive for your $410K investment ?

Answer & Explanation Solved by verified expert
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