Nelson wants to open a small boutique hotel in 5 years time. The building he wants to
Question:
Nelson wants to open a small boutique hotel in 5 years’ time. The building he wants to buy for this project is worth $22,000,000. He knows that he’ll need a 15% down payment for the building, and he’s budgeting an additional $3,000,000 for renovations and decor.
1. If Nelson can secure a high-yield investment that earns 11.7% compounded monthly, what will be his beginning-of-month deposits if he wants to open the hotel in 5 years? To purchase the building, Nelson pays the down payment and secures a mortgage for the remaining balance at an interest rate of 2.3% compounded semi-annually for 30 years.
2. If the interest rate is constant over the 30-year term, what are the month-end payments for the mortgage? What will be the total interest paid on the hotel over the term? When the renovations to the hotel are finished (including the name ‘Rest for the Wicked’ in stylish lettering on the front), Nelson is pleased to find that they were completed under budget, costing him only $2,370,000.