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1
1.You purchase your first home for $143,000. You pay 20% down, and amortize the rest over 30 years in equal monthly payments at 5.25% interest compounded monthly. Round all answers to the nearest cent. a. Find the requested items for the full term of this loan. Down Payment: $ Loan Amt. (Principal): $ PMT: $ Total paid (from payments): $ Total Interest Paid: $ Grand total paid: $ b. After adjusting your budget, you feel that you can pay an extra $50 each month on your mortgage payment. How will this affect your finances? New PMT: $ Time to pay off loan: months Total paid (from payments): $ Amount saved: $
2.Suppose that the current exchange rate is SF1.25/$ and three month forward exchange rate is SF1.30/$. The three-month interest rate is 4 percent per annum in United States and 8 percent per annum in Switzerland. Assume that you can borrow up to $1,000,000 or SF 1,250,000. a) Is Interest Rate Parity holding? b) If your answer to part a is no, how would you realize a certain profit via a covered interest arbitrage? Also determine the size of the arbitrage profit. 12:02
Expert Solution
1.Purchase amount = $143,000
Down payment = 20%*143,000 = $28,600
Loan amount = 143,000 - 28,600 = $114,400
Means loan amount of 114,400 is taken at interest rate of 5.25% compounded monthly, to be amortized in 30 years in equal monthly instalments.
As per the information and data given in the question, we get as follows:
Instalment Payment Every Month(PMT) = $631.72 (Principal + Interest)
Payment in a year(12 instalments) = 12*631.72 = $7580.64
Total instalment (12*30=360) Payments = 360*631.72 = $227,419.57 (Grand total paid)
Total Interest = 227,419.57 - 114,400 = $113,019.57 (Total Interest Paid)
Part b)
The remaining balance is $114,400.00. By paying extra $50.00 per month, the loan will be paid off in 25 years and 4 months. It is 4 years and 8 months earlier. This results in savings of $20,518.94 in interest.
If Pay Extra $50.00 per month
| Monthly Pay | $681.72 |
| Total Payments | $206,900.63 |
| Total Interest | $92,500.63 |
The Original Payoff Schedule was :
| Monthly Pay | $631.72 |
| Total Payments | $227,419.57 |
| Total Interest | $113,019.57 |
2.PLEASE SEE THE ATTACHED FILE.
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