This slide is based on case study of the Time value of money. It deals with the future and the present value of money. It helps you in getting an idea of the case.
2. Presented By - Adhiroop B
Karan Mishra
Atith Ruhela
Avdhesh Dhokariya
Abhinav Chaturvedi
Submitted To - Dr. Sumeet Gupta
3. THE COST & BENEFITS BEHIND OWING AND
RENTING.
OWN RENT
VS.
• Mortgage Principle & Interest
• Property Taxes
• Buying and selling Cost
• Repairs and General Maintenance
BENEFITSCOST
• Home Value Appreciation
• Mortgage Interest Deduction
• Monthly Rent
• Broker’s fee
• We can invest the purchasing amount in some other
investment .
• Annual Maintenance
4. BRIEF OF CASE
• The down payment would be of $120000.
• Deed Transfer Tax would be of $9000 @ 1.5% of Purchase Price is equal to $9000
• Provisional Deed Transfer Tax @1.5% of Purchase Price $9000.
• Other Closing fees Are equal to $2000.
• One Time payment to be made while Purchasing the house is equal to
$120000+$9000+$9000+$2000 = $140000.
• Remaining price which she will pay in monthly installments home at $480,000 ($600,000, less 20%
down).
5. PERPLEXED SITUATION
• Making the decision to rent or buy is a tough one, but one that many of us will face in our lifetime.
• In Rebecca’s case, she would be financing the home at $480,000 ($600,000, less 20% down).
• With a 25 year mortgage, Rebecca would be making payments for 300 months.
• To calculate her monthly payment, We took the $480,000 and divided it by 300 months to get a total of
$1,600.
• We then added the $1,055 monthly condo fees, and $300 monthly taxes to get a total monthly
payment of $2,955 before interest.
• Repairs and General Maintenance which she estimated would average $600 per year which
would be equal to $50 per month.
6. CONTD….
▪ When she purchases the condo for $600,000 and uses $1,20,000 as down
payment
▪ She took mortgage for $4,80,000 amortized over 25 years with annual rate
of 4% p.a.
▪ Down payment + Additional costs = 120000+9000+9000+2000 = 140000
7. Calculation of Effective Rate and Mortgage
▪ r= (1+k/m)^m-1=0.0404
▪ Converting from effective to month= (r+1)^1/m -1=0.330589
▪ Calculation of monthly mortgage=
PV=480000, FV=0, I/Y=0.33059, N=300
PMT=2524.90
Monthly cost= 140000*0.0033059=462.83
Total monthly cost (if buy) = 2524.90+1055+300+50+462.83=4392.73
Net difference (monthly) = 4392.73-3000=1392.73
8. Principal outstanding on mortgage
▪ After 2 Years
FV=0, I/Y=0.33059, N=276, PMT=2524.90
PV=456609.32
After 5 Years
FV=0, I/Y=0.33059 , N=240, PMT=2524.90
PV=417858.87
▪ After 10 Years
FV=0, I/Y= 0..059, N= 180, PMT=2524.90
PV= 342109.15
9. (a)When Condo Price Remain Unchanged
▪ After 2 years
Net Proceeds= 600000-30000-2000-456609.32 = 111390.68
Net Amount (t=24)= 111390.68 - 140000= (28609.32)
▪ After 5 years
Net Proceeds=600000-30000-2000-417858.87=150141.13
Net Amount (t=60) = 150141.13-140000= 10141.13
After 10 Years
Net Proceeds= 600000-30000-2000-342109.15= 225890.85
Net Amount (t=120) = 225890.85-140000=85890.85
10. (b)
▪ After 2 year (condo price drop 10%)
Net Proceeds = 540000-27000-2000-456609.32=54390.68
Net Amount (t=24)= 54390.68-140000= (85609.320)
After 5 years (remains same)
Net Proceeds = 600000-30000-2000-417858.87= 150141.13
Net Amount (t=60) = 150141.13-140000=10141.13
▪ After 10 years ( condo price increase by 10 %)
Net Proceeds = 660000-33000-2000-342109.15=282890.85
Net Amount (t=120) = 282890.85-140000=142890.85
11. (c)When condo price increase annually by the
inflation rate of 2 % per year
▪ For 2 years :
Net Proceeds= 624240-31212-2000-456609.32=134418.68
Net Amount= 134418.68-140000=(5581.32)
▪ For 5 years:
Net Proceeds= 662448.4819-33122.42-2000-417858.87=209467.1919
Net Amount= 209467.1919-140000=69467.1919
For 10 years:
Net Proceeds= 731396.652-36569.83-2000-342109.15=350717.672
Net Amount=350717.672-140000=210717.672
12. (d) Condo price increases by 5 % per year
▪ After 2 years:
Net Proceeds = 661500-33075-2000-456609.32= 169815.68
Net Amount= 169815.68-140000=29815.68
▪ After 5 years:
Net Proceeds = 765768.94-38288.45-2000-417858.87=307622.49
Net Amount = 307622.49-140000= 167622.49
After 10 years:
Net Proceeds = 977336.78-48866.84-2000-342109.15=584360.79
Net Amount = 584360.79-140000=444360.79
