Vivien wants to buy a house. The house she wants is listed for $300,000, and she wants to avoid PMI insurance. She can get a fixed-rate mortgage at 4.25% for 30 years. Don’t worry about taxes and insurance for any of these questions, just keep in mind that those would need to be considered as well.
(a) What down payment will she need?
(b) If Vivien makes her down payment and takes out the loan described, what will be her monthly payment?
(c) If Vivien makes her down payment and takes out the loan described, what will be the total cost of the house?

A=$60,000; B= $1,180.66 C=$485,037.60

Explanation:

A. down payment required to avoid PMI insurance is 20%

Therefore 20% of $300,000

=$60,000

B.

Price = $300,000

Down Payment = $60,000.00

Present Value PV = -$240,000 (remaining debt after down payment),

Interest Rate I = 4.25% 12= 0.354% (for each month )

Number of Periods N = 30 × 12=360

Future Value) FV = $0

Periodic Payment PMT= iPV/ (1 - 1+ i)^-n

$1,180.66

C.

Price = $300,000

Down Payment = $60,000.00

Present Value PV = -$240,000 (remaining debt after down payment),

Interest Rate I = 4.25% 12= 0.354% (for each month )

Number of Periods N = 30 × 12=360

Future Value) FV = $0

Periodic Payment PMT= $1,180.66

total cost of the house = (PMT × N)+ down payment

$1,180.66 × 360 months = $425,037.6

$425,037.6+$60,000

=$485,037.60

answer; capital structure decision;

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