Larry Davis borrows $80,000 at 14 percent interest toward the purchase of a home

Question

Larry Davis borrows $80,000 at 14 percent interest toward the purchase of a home. His mortgage is for 25 years. Use Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.

a. How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation. We will get a reasonably accurate answer.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
  Annual Payments:

b. How much interest will he pay over the life of the loan? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Amount of Interest:

c. How much should he be willing to pay to get out of a 14 percent mortgage and into a 10 percent mortgage with 25 years remaining on the mortgage? Assume current interest rates are 10 percent. Carefully consider the time value of money. Disregard taxes. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Amount to be Paid:

Explanation / Answer

(a) Annual payment will be $11,200.00

(b)Amount of Interest Larry will pay over the life of the loan is $2,80,000.00

(c)Amount Larry will pay to get out of 14% mortgage is

Interest + loan amount

i.e 2,80,000+80,000=$3,60,000.00

Amount Larry has to pay if interest rate is 10%

Interest+ loan Amount

2,00,000+80,000=$2,80,000.00

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