The Johnsons Have Accumulated a Nest Egg of $25,000 That

question 174

Multiple Choice

The Johnsons have accumulated a nest egg of $25,000 that they intend to use as a down payment toward the purchase of a new house. Because their present gross income has placed them in a relatively high tax bracket, they have decided to invest a minimum of $1,000/month in monthly payments (to take advantage of their tax deductions) toward the purchase of their house. However, because of other financial obligations, their monthly payments should not exceed $1,800. If local mortgage rates are 9.5%/year compounded monthly for a conventional 40-year mortgage, what is the price range of houses that they should consider? ​
If the Johnsons decide to secure a 20-year mortgage instead of a 40-year mortgage, what is the price range of houses they should consider when the local mortgage rate for this type of loan is 9%?
​

• A) The price of houses for 40-yr mortgage lies between $5,461,292 and $9,810,325;
• For 20-yr mortgage - between $692,887 and $1,227,196.
• B) The price of houses for 40-yr mortgage lies between $148,447 and $247,205;
• For 20-yr mortgage - between $136,145 and $225,061.
• C) The price of houses for 40-yr mortgage lies between $136,145 and $225,061;
• For 20-yr mortgage - between $148,447 and $247,205.

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Definitions:

Noncontrolling Interest

Equity in a subsidiary not attributable directly or indirectly to the parent company, reflecting the portion of subsidiary earnings not owned by the parent.

Noncontrolling Interest Valuation

The process of determining the value of minority shareholders' equity in a subsidiary that is not wholly owned by the parent company.

Treasury Stock

Shares that were issued and subsequently reacquired by the company, held in the company's treasury, and are not considered when calculating earnings per share or dividends.

Bonds Payable

A form of long-term debt issued by corporations or governments that promises to pay the bondholder a specified sum of money at future dates.