Question: Captain Sinclair has been posted to Cold Lake, Alberta. He prefers to purchase a condo rather than live on the base. He knows that in

Captain Sinclair has been posted to Cold Lake, Alberta. He prefers to purchase a condo rather than live on the base. He knows that in 4 years he will be posted overseas. The condo he wishes to purchase will require a mortgage of $130 000, and he has narrowed his choices to two lenders. Trust Company A is offering a 5-year mortgage at 6.75% compounded semi-annually. This mortgage can be paid off at any time but there is a penalty clause in the agreement requiring 2 months’ interest on the remaining principal. Trust Company B is offering a 5-year mortgage for 7% compounded semi-annually. It can be paid off at any time without penalty. Both mortgages are amortized over 25 years and require monthly payments. Captain Sinclair will have to sell his condo in 4 years and pay off the mortgage at that time before moving overseas. Given that he expects to earn 3% compounded annually on his money over the next 5 years, which mortgage offer is cheaper? By how much is it cheaper?

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Trust Company A option PV 130 00000 n 1225 300 i 675 2 3375 c 16 p 103375 16 1 1005547 1 05547 130 0... View full answer

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