Cindy is purchasing a $360,000 home with a $288,000 SAM at 6% interest, amortized over 25 years, with one discount point

Part (1):

Amount of appreciation= C(1+r)^n-1

Where C= Cost of house, r= rate of appreciation per year and n= holding period in number of years.

Given,

Cost of house= $360,000 and expected appreciation= 3.5%

Holding period= 5 years

Plugging the inputs, amount of appreciation= 360000*((1+3.5%)^5-1)

=360000*0.187686306= $67,567.07

Answer is choice (c)

Part (2):

Being a shared appreciation mortgage (SAM), predetermined share of appreciation should be paid to the lender at the end of the term. With appreciation at 3.5% per year, and the agreed share of 30%, amount of appreciation to be shared is 67567.07*30%= $20,270.12.

After paying 1 point, net loan received is $285,120.

Amount to pay off the loan is the balance outstanding calculated as the present value of remaining monthly payments ascertained at $259,004.41 using PV function of Excel plus the share of appreciation.

Effective borrowing cost = 7.47% ascertained using RATE function of Excel.

Answer is choice (a)

Details of calculation as below:

please see the attached file for the complete solution.