Mini-Case E: (1 mark)
Chao has an outstanding mortgage balance of $300,000. He has 15 months remaining on his 5-year mortgage term at an annual interest rate of 5% compounded semi-annually. The current five-year fixed rate of interest for a mortgage is 3% compounded semi-annually. He would like to “blend and extend” his existing mortgage for another five-year or 60-month, term. Under a “blend-and-extend” option, what would be Chao’s blended rate? (.5 marks)
Calculation: (.5 marks)
Chao loves his Starbucks café latte every morning but realizes this is quite costly and wants to start saving his money instead. His graduation gift from his parents was a fabulous expresso machine which he retrieved from the back of his closet. Making his own coffee each morning costs him $0.98 (taxes included) versus his daily Starbucks Caffè Misto with taxes and tip, cost him $9.59 per day. What is Chao’s overall saving, if instead he transfers the net difference of $8.61 to his investment account each morning, investing it at 4.5%, at compounded weekly interest, for 365 days per year over 40 years? The expresso machine is a high-quality Italian brand; assume it will last 40 years. (.5 marks)
Calculation: (.5 marks)