1. Calculate the equity each of these people has in his or her home: a. Fred jus
ID: 2721713 • Letter: 1
Question
1. Calculate the equity each of these people has in his or her home:
a. Fred just bought a house for $200,000 by putting 10% as a down-payment and borrowing the rest from the bank;
b. Freda bought a house for $150,000 in cash, but if she were to sell it now, it would sell for $250,000;
c.Frank bought a house for $100,000. He put 20% down and borrowed the rest from the bank. However, the value of the house has now increased to $160,000 and he has paid off $20,000 of the bank loan.The operating expenses of the bank were $35 million for office space and salaries, and the bank owed $3 million in taxes. Calculate the accounting profits or losses for the Love City Bank
Explanation / Answer
Equity calculation
a.
Value of Fred home = $200,000
Down payment = 10%
Loan Amount = 90%
Value of equity = $200,000 × 10%
= $20,000
Hence, Value of equity of Fred in his home is $20,000.
b.
Purchase price of home = $150,000
Sell price of home = $250,000
So book value of equity of Freda in her home is $150,000 and market value is $250,000.
c.
Value of loan = $100,000
Down payment = 20%
Loan = 80%
Value of loan = $100,000 × 80%
= $80,000
Value of loan is $80,000.
Loan repaid = $20,000
Market price of home = $160,000
Equity value of Frank in his home = $160,000 + $20,000 - $80,000
= $100,000
Hence, Market value of equity in Frank house is $100,000.
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