You submitted this quiz late, and your answers may not have been
recorded.

 Published
Assignment Unit08
 This is a preview of the draft version of the quiz
Quiz Type
Points
Assignment Group
Shuffle Answers
Time Limit
Multiple Attempts
Score to Keep
Attempts
View Responses
Show Correct Answers
One Question at a Time
Graded Quiz
30
Assignments
No
No Time Limit
Yes
Highest
Unlimited
Always
Immediately
No
Due
For
Available from
Until
Mar 28
Everyone
­
Mar 29 at 11:59pm
Take the Quiz Again
Score for this attempt: 0 out of 30
Submitted Apr 20 at 11:01am
This attempt took less than 1 minute.
Preview
 Edit   Unanswered
Question 1
0 / 1 pts
The following 15 questions are in a group. In order to avoid the domino effect of getting a wrong answer early on, I have put in numbers in
subsequent questions that may or may not be the correct answer for the previous questions. These numbers are not to be used as answers
for the previous questions. Consider a married couple buying a $50,000 house using a $2,500 down payment and financing the balance for
30 years at a conventional fixed rate of 10 percent. What is the monthly mortgage payment?
Less than $400.00 Between $400.00 and $405.00 Between $405.01 and $410.00 Between $410.01 and $415.00 More than $415.00 Correct Answer
Answer: M = (50000­2500) / PVFS (rm=10%/12, n=360 months) = 416.85
Unanswered
Question 2
0 / 1 pts
Consider property taxes are $50 monthly and hazard insurance is $30 monthly. The standard deduction is $5,000 each year. The mortgage
interest payment for year 1 is $4738.12. What is the tax saving for year 1 if the couple's combined federal and state marginal tax rate is
33%?
Less than $95.00 Between $95.00 and $100.00 Between $100.01 and $105.00 Between $105.01 and $110.00 Correct Answer
More than $110.00 Answer: (4738.12+50*12­5000)*33%=111.58
Unanswered
Question 3
0 / 1 pts
Consider property taxes are $50 monthly and hazard insurance is $30 monthly. The standard deduction is $5,000 each year. The mortgage
interest payment for year 2 is $4710.47. What is the tax saving for year 2 if marginal tax rate is 33%?
Less than $95.00 Between $95.00 and $100.00 Correct Answer
Between $100.01 and $105.00 Between $105.01 and $110.00 More than $110.00 Answer: (4710.47+50*12­5000)*33%=102.45
Unanswered
Question 4
0 / 1 pts
Consider property taxes are $50 monthly and hazard insurance is $30 monthly. The standard deduction is $5,000 each year. The mortgage
interest payment for year 3 is $4679.92. What is the tax saving for year 3 given a 33% marginal tax rate?
Correct Answer
Less than $95.00 Between $95.00 and $100.00 Between $100.01 and $105.00 Between $105.01 and $110.00 More than $110.00 Answer: (4679.92+50*12­5000)*33%=92.37
Unanswered
Question 5
0 / 1 pts
Consider a married couple buying a $50,000 house using a $2,500 down payment. Initial closing costs are $2500. How much is the net one­
time costs of homeownership (with net defined as the difference between ownership and rental) for this couple, if rental deposit is not taken
into consideration (so upfront rental cost is zero)?
Less than $4,975.00 Between $4,975.00 and $4,985.00 Between $4,985.01 and $4,995.00 Correct Answer
Between $4,995.01 and $5,005.00 More than $5,005.00 Answer: Net one­time costs of homeownership = down payment + closing cost = 2500 + 2500 = $5,000
Unanswered
Question 6
0 / 1 pts
Suppose in the previous question you figure out that the net one­time costs of homeownership is $5,000 (note this number may or may not
be the correct answer for the previous question). Consider a holding period of 3 years. Alternative after­tax investment rate is 6%. What is
the Future Value of these net one­time costs of homeownership after the holding period of 3 years?
Less than $5,920.00 Between $5,920.00 and $5,930.00 Between $5,930.01 and $5,940.00 Between $5,940.01 and $5,950.00 Correct Answer
More than $5,950.00 Answer: FV = 5,000 * (1+0.06)^3 = $5,955.08
Unanswered
Question 7
0 / 1 pts
Suppose in the previous questions you figure out that the monthly mortgage payment is $417 and the tax saving for year 1 is $112 (note
these numbers may or may not be the correct answers for the previous questions). Consider property taxes are $50 monthly and hazard
insurance is $30 monthly. Operating costs and maintenance are $150/month and increase by 10% annually. What is the total ownership
periodical cost, which includes mortgage, property tax, insurance, and operating and maintenance for year 1?
Less than $7,625.00 Between $7,625.00 and $7,635.00 Between $7,635.01 and $7,645.00 Correct Answer
Between $7,645.01 and $7,655.00 More than $7,655.00 Answer: Total ownership periodical cost for year 1 = (417*12)+600+360+1800­112=5004 + 600 + 360+ 1800 ­112=7652
Unanswered
Question 8
0 / 1 pts
Suppose in the previous question you figure out that the total ownership periodical cost is $7650 (note this number may or may not be the
correct answer for the previous question). Assume that alternative rent (including utilities and maintenance) is $300/month and increase by
7% annually. What is the NET ownership periodical cost for year 1, with net defined as the difference between ownership and rental?
Less than $4,045.00 Correct Answer
Between $4,045.00 and $4,055.00 Between $4,055.01 and $4,065.00 Between $4,065.01 and $4,075.00 More than $4,075.00 Answer: Net ownership periodical cost for year 1 = 7650­3600= 4050
Unanswered
Question 9
0 / 1 pts
Suppose in the previous question you figure out that the net ownership periodical cost for year 1 is $4,050 (note this number may or may
not be the correct answer for the previous question). Consider a holding period of 3 years. Alternative after­tax investment rate is 6%. What
is the future value of the net ownership periodical cost for year 1, given a holding period of 3 years?
Less than $4,790.00 Between $4,790.00 and $4,800.00 Between $4,800.01 and $4,810.00 Between $4,810.01 and $4,820.00 Correct Answer
More than $4,820.00 Answer: FV1=4050*(1+6%)^3=4823.62
Unanswered
Question 10
0 / 1 pts
Suppose in the previous questions you figure out that the monthly mortgage payment is $417 and the tax saving for year 2 is $105 (note
these numbers may or may not be the correct answers for the previous questions). Consider property taxes are $50 monthly and hazard
insurance is $30 monthly. Operating costs and maintenance are $150/month and increase by 10% annually. Alternative rent including
utilities and maintenance is $300/month and increase by 7% annually. Alternative after­tax investment rate is 6%. What is the future value
of the net ownership periodical cost for year 2, given a total holding period of 3 years?
Less than $4,445.00 Between $4,445.00 and $4,455.00 Between $4,455.01 and $4,465.00 Between $4,465.01 and $4,475.00 Correct Answer
More than $4,475.00 Answer: ownership year 2 cost = 417*12+ 600+360+1800*(1+10%)­105= 7839 Net ownership year 2 cost =7839­3600*
(1+7%)=7839­3852=3987 FV2=3987*(1+6%)^2=4479.79
Unanswered
Question 11
0 / 1 pts
Suppose in the previous questions you figure out that the monthly mortgage payment is $417 and the tax saving for year 3 is $95 (note
these numbers may or may not be the correct answers for the previous questions). Consider property taxes are $50 monthly and hazard
insurance is $30 monthly. Operating costs and maintenance are $150/month and increase by 10% annually. Alternative rent including
utilities and maintenance is $300/month and increase by 7% annually. Alternative after­tax investment rate is 6%. What is the future value
of the net ownership periodical cost for year 3, given a holding period of 3 years?
Less than $4,145.00 Between $4,145.00 and $4,155.00 Correct Answer
Between $4,155.01 and $4,165.00 Between $4,165.01 and $4,175.00 More than $4,175.00 Answer: ownership year 3 cost = 5004+ 600+360+1800*(1+10%)^2­95 =8047 Net ownership year 3 cost =8047­3600*
(1+7%)^2=8047­4121.64=3925.36 FV3=3925.36*(1+6%)^1=4160.88
Unanswered
Question 12
0 / 1 pts
Suppose in the previous questions you figure out that the future value of the net ownership periodical cost for year 1 is $4,830, the future
value of the net ownership periodical cost for year 2 is $4,475 and the future value of the net ownership periodical cost for year 3 is $4,160
(note these numbers may or may not be the correct answers for the previous questions). Combining all three years, what is the total net
ownership periodical cost, expressed in Future Value terms at the end of the holding period?
Less than $13,440.00 Between $13,440.00 and $13,450.00 Between $13,450.01 and $13,460.00 Correct Answer
Between $13,460.01 and $13,470.00 More than $13,470.00 Answer: FV Total net ownership periodical cost = FV1 +FV2+FV3 =4830+4475+4160=13465
Unanswered
Question 13
0 / 1 pts
Suppose in the previous questions you figure out that the Future Value of the net one­time costs of homeownership after the holding period
of 3 years is $5,960 and the total net ownership periodical cost is $13,460 (note these numbers may or may not be the correct answers for
the previous questions). The mortgage loan balance at the end of year 3 is $46622.03. Assuming a 6% sales commission, how much does
the couple need to sell their house for after 3 years in order for the ownership decision to break even with rental?
Less than $70,245.00 Between $70,245.00 and $70,255.00 Correct Answer
Between $70,255.01 and $70,265.00 Between $70,265.01 and $70,275.00 More than $70,275.00 Answer: (c) breakeven price = (5960+13460+46622.03) / (1­6%) = 66043.71/0.94 =$70257.48
Unanswered
Question 14
0 / 1 pts
Suppose in the previous question you figure out that the couple needs $70,250 to sell their house after 3 years in order for the ownership
decision to break even with rental (note this number may or may not be the correct answer for the previous question). Recall the purchasing
price of the home is $50,000, and the holding period is 3 years. Given this selling price, what is the breakeven annual appreciation rate for
the house?
Less than 5.00% Between 5.00% and 7.00% Between 7.01% and 9.00% Between 9.01% and 11.00% Correct Answer
More than 11.00% Answer: 50,000 * (1+A)^3 = 70250 = A=12%
Unanswered
Question 15
0 / 1 pts
Suppose in the previous question you figure out that the breakeven annual appreciation rate for the house is 10.5% (note this number may
or may not be the correct answer for the previous question). If the experts in the housing industry are predicting that the annual appreciation
rate on similar houses in the next three years will be 10%, should the couple buy the house or rent?
Buy Correct Answer
Rent Answer: Because the required annual appreciation rate of 10.5% is greater than the predicted rate of 10%.
Unanswered
Question 16
0 / 1 pts
There are 3 questions in this group. For convenience the information is repeated for each question. A household seeking a $60,000
conventional mortgage loan at 11% for 30 years earns a gross annual income of $35,000. The monthly payments for hazard insurance and
property taxes are $100. What is the PITI ratio for this household?
Less than 19.00% Between 19.00% and 20.00% Between 20.01% and 21.00% Between 21.01% and 22.00% Correct Answer
More than 22.00% @Answer: Monthly mortgage payment = 60000/PFVS (rm=11%/12, n=360)=571.39 PITI ratio = PITI / monthly gross
income= (571.39+100) / (35000/12) = 671.39 / 2916.67= 23.02%
Unanswered
Question 17
0 / 1 pts
A household seeking a $60,000 conventional mortgage loan at 11% for 30 years earns a gross annual income of $35,000. The monthly
payments for hazard insurance and property taxes are $100. If the bank's limit for PITI ratio is 27 percent, would the household qualify for
the loan?
Correct Answer
Yes No Answer: Since 23.02% 27%, this couple will qualify for the loan.
Unanswered
Question 18
0 / 1 pts
A household seeking a $60,000 conventional mortgage loan at 11% for 30 years earns a gross annual income of $35,000. The monthly
payments for hazard insurance and property taxes are $100. They also have a monthly car payment of $400. If the bank's limit for
combined PITI and debt ratio is 38%, would the household qualify for the loan when other debts are taken into consideration?
Correct Answer
Yes No Answer: PITI +debt ration= (PITI + debt)/gross monthly income=(571.39+100+400)/ (35000/12) = 1071.39 / 2916.67=
36.73%38%
Unanswered
Question 19
0 / 1 pts
John is applying for a 30­year fixed rate mortgage with Bank America. Suppose Bank America uses a PITI ratio of 28% to qualify
borrowers. Now suppose John has a monthly gross income of $4,000. What is the maximum amount of monthly PITI payment John can
qualify for, assuming that John does not have any other debt?
less than $1,105 between $1,105and $1,115 Correct Answer
between $1,116 and $1,125 between $1,126 and $1,135 more than $1,135 Answer: 4000*28%=1120
Unanswered
Question 20
0 / 1 pts
The following 4 questions are in a group. In order to avoid the domino effect of getting a wrong answer early on, I have put in numbers in
subsequent questions that may or may not be the correct answers for the previous questions. These numbers are not to be used as
answers for the previous questions. You are ready to sign a contract to buy a house using an adjustable rate mortgage (ARM). The
mortgage loan is $100,000 for 30 years at an initial teaser rate of 6%. The interest rate and payments are changed every month. The
interest rate is tied to the Treasury Security Index, plus a spread of 2% points. There is no interest rate cap. Assume the Treasury security
Index is 5% at the beginning of the second month. Total mortgage payment for the first month is
less than $575.00 between $575.00 and $585.00 between $585.01 and $595.00 Correct Answer
between $595.01 and $605.00 more than $605.00 Answer: M1=100000/PFVS (rm=6%/12, n=360)=100000/166.791614=599.55
Unanswered
Question 21
0 / 1 pts
Suppose in the previous question you figure out that the mortgage payment for the first month is $600 (note this number may or may not be
the correct answer for the previous question). Recall the mortgage loan is $100,000 for 30 years at an initial teaser rate of 6%. The loan
balance after the first month payment is
less than $99,885.00 between $99,885.00 and $99,895.00 Correct Answer
between $99,895.01 and $99,905.00 between $99,905.01 and $99,915.00 more than $99,915.00 Answer: Interest payment for the first month = 100,000*(6%/12)=500 Principal payment for the first month =600­
500=100 Loan balance after the first month payment =100000­ 100=99,900
Unanswered
Question 22
0 / 1 pts
You are ready to sign a contract to buy a house using an adjustable rate mortgage (ARM). The mortgage loan is $100,000 for 30 years at an
initial teaser rate of 6%. The interest rate and payments are changed every month. The interest rate is tied to the Treasury Security Index,
plus a spread of 2% points. There is no interest rate cap. Assume the Treasury security Index is 5% at the beginning of the second month.
The second month interest rate is?
3% 4% 5% 6% Correct Answer
7% Answer: Rate = index +spread =5%+2%=7%. No cap so 7% it is
Unanswered
Question 23
0 / 1 pts
Suppose in the previous questions you figure out that the loan balance after the first month payment is $99,910 and the second month
interest rate is 7% (note these numbers may or may not be the correct answers for the previous questions). The second month mortgage
payment is
less than $630.00 between $630.00 and $640.00 between $640.01 and $650.00 between $650.01 and $660.00 Correct Answer
more than $660.00 Answer: M2=Balance/PVFS (rm=7%/12, n=359) = 99910/150.184362=665.25
Unanswered
Question 24
0 / 1 pts
You have a 30­year fixed Graduated Payment Mortgage with an 8% interest rate. The initial balance is $200,000. Your first year monthly
payments are $1000 each month. After your first monthly payment, what is your new mortgage balance?
Less than $200,300.00 Between $200,300.00 and $200,310.00 Between $200,310.01 and $200,320.00 Between $200,320.01 and $200,330.00 Correct Answer
More than $200,330.00 Answer: Interest payment for first month = 200000*8%/12=1333.33 You only paid 1000, not enough to cover interest.
The amount you owe will be added to your loan balance. So you new loan balance = 200000+333.33 =200,333.33
Unanswered
Question 25
0 / 1 pts
One important step in comparing the financial cost of ownership vs. renting is to compute the net periodical cost of home ownership. Which
of the following is NOT included in the net periodical cost of home ownership?
rent for a comparable house monthly mortgage payment for the house homeowner=s insurance Correct Answer
closing cost property tax on the house Unanswered
Question 26
0 / 1 pts
What is the minimum amount of down payment you need to put down for a house if you don't want to pay for private mortgage insurance?
5% 10% 15% Correct Answer
20% 25% Unanswered
Question 27
0 / 1 pts
A teaser rate is a term used to describe
the interest rate in a fixed­rate mortgage Correct Answer
the initial interest rate in an adjustable rate mortgage the initial interest rate in a graduated payment mortgage the interest rate in a bi­weekly mortgage Unanswered
Question 28
0 / 1 pts
In housing ownership vs. renting comparison, one important step is to compute the future value of the net one­time cost of home ownership.
This net one­time cost of home ownership typically includes
Correct Answer
down payment for the house property tax on the house monthly mortgage payment for the house homeowner=s insurance operating and maintenance cost of the house Unanswered
Question 29
0 / 1 pts
Holding other things equal, the higher a consumer's marginal tax rate, the ________the benefit of purchasing a house.
Correct Answer
more less can be either more or less, depending on the consumer=s total income can be either more or less, depending on the housing appreciation rate can be either more or less, depending on the alternative financial investment interest rate Unanswered
Question 30
With a conventional fixed rate mortgage, which of the following statements is NOT true?
It has a fixed interest rate It can have 30­year term, 15 year­term, etc. It has fixed monthly payments Correct Answer
It has fixed interest payments 0 / 1 pts
Quiz Score: 0 out of 30