Time Value of Money

NATIONAL UNIVERSITY OF SCIENCES AND TECHNOLOGY NUST Business School Assignment 1

Course Title Financial Management

MBA (B) – Spring 2015

Read the case study “Time value of money: The buy versus rent decision” and answer the following questions

1. Give a short summary of Case Study by precisely discussing the main problem/objective. 2. Determine the total amount due at closing (signing the agreement of buying) if Rebecca decided to buy. 3. Determine the monthly payments for mortgage amount (i-e loan) 4. Determine the monthly payments for Rebecca including the mortgage plus other fees/costs. 5. How much additional amount Rebecca needs to arrange in comparison with her current monthly rent. 6. Determine the principal outstanding after a. 2 years b. 5 years c. 10 years 7. Determine the opportunity costs on monthly basis i-e assume funds can be invested on monthly effective rate. 8. If Rebecca is going to sell what will be her net proceeds after 2, 5 and 10 years under the following scenarios. a. The real estate price remains unchanged. b. The real estate price drops 10 percent over the next 2 years, then increases back to its purchase price by the end of 5 years, then increases by a total of 10% from original purchase price by the end of 10 years. c. The real estate price increases annually by the annual rate of inflation of 2 % per year over the next 10 years.

Due Date: Soft Copy: Midnight April 8, 2015 (excel sheet only via LMS link) No Hard Copy required.

Good luck 