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.