You Are Considering Purchasing a Home

question 7

Essay

You are considering purchasing a home. You find one that you like but you realize that you will need to obtain a mortgage for $100,000. The mortgage company presents you with two options: a 15-year mortgage at a 6.0% annual rate and a 30-year mortgage at a 6.5% annual rate. What will be the fixed annual payment for each mortgage?

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Definitions:

Selling and Administrative Expense

Costs incurred by a company from its selling activities and the management of the overall company, excluding production costs.

Cash Basis

A bookkeeping approach that only recognizes earnings and outgoings at the time cash is exchanged.

Financing Activities

Activities that result in changes in the size and composition of the equity capital or borrowings of a company.

Direct Method

A cash flow statement preparation approach where actual cash flow information from the company's operations is used, as opposed to indirect methods which adjust net income.