Contemporary Engineering Economics 6th Edition by Chan Park

تمرين 75

Suppose you are going to buy a home worth $110,000 and you make a down payment in the amount of $50,000. The balance will be borrowed from the Capital Savings and Loan Bank. The loan officer offers the following two financing plans for the property.
• Option 1. A conventional fixed-rate loan at an interest rate of 13% over 30 years with 360 equal monthly payments.
• Option 2. A graduated payment schedule at 11.5% interest with the monthly payment schedule given in Table 1. If you go with this graduated payment loan, mortgage insurance is a mustin addition to the monthly payments.
(a) Compute the monthly payment under option 1.
(b) What is the effective annual interest rate you are paying under option 2
(c) Compute the outstanding balance at the end of five years under each option.
(d) Compute the total interest payment under each option.
(e) Assuming that your only investment alternative is a savings account that earns an interest rate of 6% compounded monthly, which option is a better deal
Table 1