Math (Maximum Loan)

Question 1

A borrower wishes to make payments of no more than $500 per month for 360 months. If interest rates are currently 10.5% per annum, compounded semi-annually, what is the maximum amount that should be lent?

(1) $55,500.00
(2) $54,660.38
(3) $55,670.60
(4) $56,675.77

Answer 1

3

j2=10.5
n=360

? -500 0

=$55,670.60

Question 2

A borrower wishes to make monthly payments totalling no more than $625 per month for 300 months. If interest rates are currently 10 1/2% per annum, compounded semi-annually, what is the maximum amount that should be lent?

(1) $64,212.47
(2) $67,325.22
(3) $66,194.89
(4) $63,069.39

Answer 2

2

j2=10.5%
n=300

? -625 0

=67,325.21

Question 3

A borrower wishes to make monthly payments of no more than 30% of his monthly income of $2,500 for a period of 200 months. If interest rates are currently 9% per annum, compounded semi-annually, what is the maximum amount that should be lent?

(1) $90,582.19
(2) $89,371.22
(3) $77,561.75
(4) $78,374.01

Answer 3

4

j2 = 9%
n=200

? -750.00 0

=$78,374.00

Question 4

A potential borrower has inquired as to how large a mortgage loan she can “afford” with monthly payments of $850. If mortgage interest rates are currently 4% per annum, compounded semi-annually, with an amortization period of 25 years, calculate the maximum loan allowable.

(1) $140,268.58
(2) $145,628.43
(3) $153,657.94
(4) $161,590.75

Answer 4

4

j2=4%
n=25(300)

? -850 0

=$161,590.75

Question 5

Happy Valley Trust Company arranges a mortgage with Morley Mortgagor. Morley’s budget constraints are such that he feels he can pay up to $1,200 per month on the mortgage. Assuming that Morley arranges a loan with an amortization period of 20 years and an interest rate of j2 = 10%, what is the maximum amount that he can borrow based on his budget constraint?

(1) $126,094.87
(2) $132,056.68
(3) $134,155.07
(4) $117,898.23

Answer 5

1

j2 = 10%
n=20(240)

? -1,200 0

=$126,094.86

Question 6

A potential borrower has inquired as to how large a mortgage loan she can “afford” with monthly payments of $550. If mortgage interest rates are currently 14% per annum, compounded semi-annually, with an amortization period of 25 years, calculate the maximum loan allowable.

(1) $45,260.94
(2) $47,214.35
(3) $45,690.13
(4) $46,853.31

Answer 6

4

j2=14%
n=25(300)

? -550 0

=46,853.31

Question 7

Mombasa Logging Company wants to borrow money to build a head office building in Victoria. The company plans to occupy one floor of the building and rent out the rest. They project that the building’s net operating income for the next five years will be $637,500 per year. Current mortgage terms on office building projects are j1 = 14%, amortized over 30 years with quarterly payments. River Bank feels that Mombasa Logging is optimistic in their net operating income projections and has therefore set the required debt coverage ratio at 1.5. Which of the following represents Mombasa’s maximum allowable loan (rounded to the nearest $1,000).

(1) $3,128,000
(2) $7,038,000
(3) $1,043,000
(4) $12,512,000

Answer 7

1

we are too good

637,500/1.5 = 425,000

425,000/4= 106,250.00

j1 = 14
n=30(4) = 120

? -106,250 0

=$3,128,115.32

Question 8

A property listed for sale has a net operating income of $15,763 per annum which is assumed to be perpetual and constant. The market capitalization rate is 9.5% per annum. What is the maximum price a prudent investor should pay for this property?

(1) $149,748.50
(2) $165,926.32
(3) an amount lower than $149,748.50
(4) not possible to determine with the information provided

Answer 8

2

not sure exactly how this works but

15,763(net operating income)/9.5%

=$165,926.31