Scenario: John is looking to buy a house in Bozeman. He has about $120,000 in savings, and the house he is interested in costs $300,000. When he approaches Boze Bank, the same bank at which all of his five brothers have accounts, he learns that he can borrow at a nominal interest rate of 5 percent. Inflation is 2 percent for 2 years after he buys the house and then increases to 3 percent. Assume that Boze Bank is the only bank in Bozeman and John's five brothers contribute a significant amount to the bank's total savings.
-Refer to the scenario above.If John takes a loan to cover the difference between the cost of the new house and his savings and makes annual payments of $50,000,how much will John owe after 3 years?

Question

Quizplus · Accepted Answer

John borrows $180,000 ($300,000 - $120,000). With a 5% interest rate, the loan grows each year. After 3 years of $50,000 payments, the remaining balance is $41,251.

Scenario: John Is Looking to Buy a House in Bozeman