Sunny wants to buy Gurjit's home in Victoria. Four years ago, Gurjit financed the $1,500,000 property with a cash down payment of $300,000 and private financing. The remaining portion of the purchase price was financed by Gurjit's friend, David, who lent the money to Gurjit at a rate of j2 = 6.25%, fully amortized over 25 years, with monthly payments of $7,856.90. Sunny is offering Gurjit a down payment of $250,000 and Sunny will assume the existing mortgage, which has 21 years remaining in the term. The current market rate of interest for similar mortgages is j2 = 7%.

Assume instead that Gurjit's loan from David had a 5-year term with an outstanding balance of $1,081,798.70 owing at the end of the term (there is one year remaining in the term). The current market rate for 1-year term mortgages is 4.95% per annum, with semi-annual compounding. If all other factors remain as above, what is the market value of Sunny's offer, rounded to the nearest dollar? (1) $1,514,521 (2) $1,481,461 (3) $1,264,521 (4) $1,372,002

Answer rating: 100% (QA)

To determine the market value of Sunnys offer we need t... View the full answer