Anodyne
Friday, February 01, 2008
 



A week of late nights (2am, 3am, 3:35AM) with Scylla and Charybdis: the Foundations of Real Estate Mathematics (BUSI 121) textbook and my new HP 10BII. The problem sets build on each other exponentially, so there's no opportunity, as with my other course this term, Capital Markets and Real Estate Markets (BUSI 101) to skip ahead, picking off the problems I can solve as I go. So I'm rolling along, performing interest rate conversions and amortizing payments, and then hit something like the following:

Scarecrow's Bar and Grill has recently been put up for sale. Bruce, a wealthy young playboy, is very interested in purchasing the restaurant. The asking price is $850,000. Since Bruce is seen as a low credit risk client by the bank, he has regotiated an $800,000 mortgage loan, written at 9.5% per annum, compounded weekly, with a 5 year term and semi-annual payments. The mortgage will be amortized over 20 years and the bank will receive a $6500 bonus that will be deducted from the face value of the loan.

A/ How much will Bruce owe at the end of the contract term?

B/ What is the effective annual rate paid by Bruce on the funds actually advanced?

C/ Immediately after receiving the loan, Bruce decides that he is no longer interested in carrying debt. Since he is rich and does not need the money anyway, he offers the loan to his friend [ward?] at a price of $810,000. Calculate the effective rate Dick earns on this investment.

& etc. Which, at 1:25am with mice rustling in the walls and rain battering the sidewalk outside, was enough to make me feel like someone had snuck up and hooked jumper cables to my brain.
- posted by cjb @ 5:14 PM


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