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  3. 1) a couple purchases a house for $280,000 using $

1) A couple purchases a house for $280,000 using $40,000 as a downpayment with the...

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Finance

1) A couple purchases a house for $280,000 using $40,000 as a downpayment with the remainder covered by a bank mortgage. Conditions of the mortgage are: 5-year term, fixed interest rate at 6.25 % compounded semiannually, 20-year amortization period, monthly payments. Five years later, the original mortgage expires and the couple wants to pay down enough of the remaining balance so that the mortgage will be completely paid off with another mortgage with a fixed interest rate of 5 % compounded semi-annually with a 10-year term and monthly payments of $2,000/month. (a) What are the monthly payments of the first mortgage? (b) What was the payment the couple made before the second mortgage?

2) You have two investment choices: - a zero-coupon bond which costs $513.60 today, pays nothing during its life and pays $1000 after five years. - a $1000 bond, pays $113 in interest semi-annually and matures in five years (a)What are the effective annual rates?(b)Which option will you choose?

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