The expected total property return is (8/12)% per month for a $100K house. You make a 20% down payment and arrange $80K mortgage financing at a (4/12)% monthly interest rate.

a. What is the opportunity cost ($ amount) of your down payment during the first month?

Hint: The dollar opportunity cost of a down payment equals the down-payment amount multiplied by the expected monthly rate of equity return.

b. The expected total property return to the house is unchanged at (8/12)% per month. The home price appreciates by a constant rate of (3/12)% each month. After 60 months, the home price will be higher, while the mortgage balance is reduced to $72K. What is the opportunity cost ($ amount) of your equity during the 61st month?

Answer rating: 100% (QA)

a The opportunity cost of the down payment is 16 The expected monthly return on the property is 800 ... View the full answer