QUESTION 10 Aya and Sakura have now saved up their down payment to buy a home, but they still need to borrow to cover the rest. For the home they want this will require a mortgage of $450,000 to cover the remaining amount and they’re not sure whether they could afford the monthly loan payments. The bank has offered them a mortgage interest rate of 3.25%, compounded monthly . How much would they have to be able to afford to pay each month in order to pay off their mortgage in 25 years? What is the total amount that would be paid to the lender after 25 years of payments? ANSWER FOR PART 1 : 2192.92 ANSWER FOR PART 2 : 657876.00 What if Aya and Sakura could only afford a monthly payment of $1800? What would be the maximum mortgage amount they could afford to borrow from the bank, if all the other conditions were the same? What is the total amount that would be paid to the lender over 25 years?
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
QUESTION 10
Aya and Sakura have now saved up their down payment to buy a home, but they still need to borrow to cover the rest. For the home they want this will require a mortgage of $450,000 to cover the remaining amount and they’re not sure whether they could afford the monthly loan payments. The bank has offered them a mortgage interest rate of 3.25%, compounded monthly .
How much would they have to be able to afford to pay each month in order to pay off their mortgage in 25 years?
What is the total amount that would be paid to the lender after 25 years of payments?
ANSWER FOR PART 1 : 2192.92
ANSWER FOR PART 2 : 657876.00
What if Aya and Sakura could only afford a monthly payment of $1800? What would be the maximum mortgage amount they could afford to borrow from the bank, if all the other conditions were the same? What is the total amount that would be paid to the lender over 25 years?
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