This final word question I'm really struggling with. I think I got the first one correct, and the second one seems right to me but what exactly should I be solving for, for the answer? The last four completely stump me. If you could explain to me how to do them I'd much apperacite that, I would ask for the answer as well so I could compare after I have finished my own work. My teacher does not speak english, so I am having trouble learning this just on my own.
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Jordan and Mike are both planning on attending university in Calgary. Jordan's parents rent him a one bedroom apartment for $750 per month. Mike's parents bought a 3 bedroom house for $285000 that required a down payment of 10% and offered a mortgage amortized over 20 years at an annual rate of 4.15% compounded semi-annually for a 5 year term. They rented the other two rooms out for $600 each per month. The house depreciated in value by 1.5% and the cost of taxes and maintenance averaged $3000 a month.
a) How much did Jordan's parents pay in rent over 5 years?
$45,000
b) What were the monthly mortgage payments on Mike's parents house?
N= 240 I%=4.15 PV=256,000 PMT= -1569.88 FV=0 P/Y=12 C/Y=2
1574.69
c) How much was left to pay on the mortgage after 5 years? (use your financial application to fill in the appropriate inputs)
d) How much had the house lose value over the 5 years?
e)Assuming the house was sold at market value after 5 years, How much would Mikes parents receive from the sale?
f) How much did Mike's parents have to subsidize the rent for the 5 years term?
Do you use or have a financial calculator? And if so, which one do you use? Also, do you understand what an "amortization table" is? If you answer these questions, then I might be able to help you.
OK. Put this link in the address bar of your Browser and press "Enter". I want you to open it and you will see an amortization table.
http://www.calculator.net/amortization-calculator.html?cloanamount=256500&cloanterm=20&cinterestrate=4.11456819&printit=0&x=49&y=23
That amortization table is the mortgage of Mike's parents. From it, in the top, you will see the "monthly payment", which is question "b". Then go down to the end of the 5th year, and you will see the balance of the mortgage after 5-year term, which is the answer to question "c". Make sure that you click on "Monthly Schedule" NOT "Annual Schedule".
NO!!. C is wrong. Look at the balance after 60 payments, which is 5 years x 12 =60 months. The balance is in front of you as; $210,595.50.
Question D is asking " How much did the house drop in value after 5 years". What percentage did the house drop in 5 years? Look at the end of your question. It says 1.5%. So, you take the value of the house when they purchased it, which was $285,000 x 1.5% =$4,275.00, which is how much the house lost in its value after 5 years.
Oh, I see now, for C.) I got confused with the labeling of the tables and was looking at year 6 end not year 5.
so E.) and F.) left. F.) is basically asking how much money they had to pay the company for renting the bedrooms right? So would that be How much they ended up paying minus the tax? Then for E.) is what, would the person buying the house just have to buy what they hadn't paied in mortagage?
OK. I'm doing one question at a time so that you understand what is being asked and how to get the answer. Question E is asking " How much would they get if they sold the house after 5 years?". Well, you know from question D how much the house lost in value after 5 years. We got $4,275.00 right?
So the house, in theory, is only worth : $285,000 - $4,275.00 =$280,725. This is only theoretical because, in fact, there are commissions and fees and even taxes they may pay, but that is NOT included here, so you don't have to worry about it.
OK. Now question F is perhaps the most "difficult". It is asking "How much did Mike's parents subsidize the rent over 5-year period?" In other words, how much EXTRA money did his parents spent in buying the house, instead of just renting him a room for $750 per month, as Jordan's parents did for their son? Well, Jordan's parents rented him a room for $750 per month for 5 years or 60 months. So, $750 x 60 =$45,000, which is what you got in question A. Mike's parents could have done the same thing, but instead went and purchased a house which turned out to be much more expensive than just renting a room for their son.
So, we have to find out how much extra they spent on their son by buying a house.
First, when they bought the house for $285,000, remember they paid 10% down payment. That means they spent: $285,000 x 10% =$28,500 as a down payment. Right? Then, your question says it cost them an average of $3,000 per month in maintenance, bills, mortgage payments, taxes....etc. So, you have: $3,000 x 60 months =$180,000. So, $180,000 + $28,500 (down payment) =$208,500. This is how much the house cost them over 5 years. But, remember that rented 2 room in house for $600 each per month, or $1,200 per month x 60 months =$72,000 which you can subtract from their total expenses: Or $208,500 - $72,000 =$136,500. This is the net expense that Mike's parents spent on the house. As you remember, they could have rented him a room for $750 per month or $45,000 over 5 years. So, Mike's parents " subsidized" his rent to the tune of : $136,500 - $45,000=$91,500. This is how much EXTRA they spent on their son's rent over 5 years. Or $91,500 / 60 months=$1,525 extra per month they spent subsidizing their son's rent.
And that is the best that I can do for you. Good luck.
