Many advertisements contain offers that seem too good to be true. A few years ago, an actual newspaper ad offered “a $150,000 house with a zero interest rate mortgage” for sale. If the purchaser made monthly payments of $3,125 for four years ($150,000 ÷ 48 months), no interest would be charged.

When the offer was made, mortgage interest rates were 12 percent. Present value for n = 48, and

i = 1% is 37.9740.

Required:

1. Did the builder actually provide a mortgage at zero interest?

2. Estimate the true price of the home that was advertised. Assume that the monthly payment was based on an implicit interest rate of 12 percent.