Description

 

Question: 1 ballpark method is a method of estimation that gives the closest possible value

Total sunken cost= total cost of purchase

=$105,500 +(1.7% of 105500)+ 325+210+420+300+240+620

=$109408.5+375+8500

Total cost incurred =118283.5

The risk free rate of return is assumed 3.9%

Lucinda should therefore sell the house at a value larger than 3.9%

Sales proceeds=135000-(7%of 135000)-1000

=124550

RRR ESTIMATE= (expected gains-sunken cost)/sunken cost

={(124550-118283.5)/ 118283.5}*100%

= 5.2979%

 

 

 

 

 

 

 

 

 

Cash Flow Diagram on the loan advanced to buy the foreclosed house

118283.5

 

 

 

 

 

 

 

Key:   positive cashflows- loan borrowed

Negative Cashflows- Monthly payments

 

 

Question 2: Amortization schedule

 

total amount	payments	each payment	Interest accrued	Total Pay
118283.5	1	19713.91667	768.84275	20482.76
	1	19713.91667	768.84275	20482.76
	1	19713.91667	768.84275	20482.76
	1	19713.91667	768.84275	20482.76
	1	19713.91667	768.84275	20482.76
	1	19713.91667	768.84275	20482.76
		118283.5	4613.0565	122896.6

 

 

Question 3: from excel sheet 2

Loan amount	118284	monthly interest	total Interest
interest rate	3.90%	768.8426807	11123.95
no of months	6
monthly pay	20482.8
payment	129407
	1		RRR	54.3088
	2

 

 

Question 4: From Excel Sheet 2

Loan amount	118284	monthly interest	total Interest
interest rate	3.90%	20482.75935	8708.275
no of months	6
monthly pay	20482.8
Payment	126992
	1		RRR	42.5151
	2

 

Question 5: From excel sheet 2

Loan amount	118284	monthly interest	total Interest
interest rate	3.90%	9857	3533.016
no of months	12
monthly pay	9857
payment	121817
	1		RRR	35.8427
	2

 

The formulas used in excel

PMT(rate*nper*pv)

…where…

PMT= payment made periodically

rate…The periodic rate. With monthly payments, the rate would be:
in this case, rate=3.9%

nper…The number of periods

in his case its 6 periods.