Scenario: John Is Looking to Buy a House in Bozeman

question 177

Multiple Choice

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.Assume John has to pay a 5 percent sales tax on his house.He uses the remainder of his cash and borrows the remaining amount of money.At the end of each year,he pays $50,000 toward the loan.How much interest will he end up paying in total?

• A) $28,805
• B) $20,805
• C) $13,805
• D) $17,805

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