Raymond and his wife earn $48,000 (after tax) each year. They decide to spend $555,000 buying a townhouse in the town of Far Far Away.
Raymond and his wife are both 45 years old with two children (age 5 and 6).
They borrow money from the Bank of Kwok and this algebraic formula is used to calculate their payment since they do not need a down payment.
1.13T × 1.253 = 475N
where T is the price of the townhouse
1.13 is the 13% HST (thus 1.13T is the total cost you must pay)
N is the number of months for your payment; D = 0
1.13T × 1.253 = 475N
1.13 × 555000 × 1.25^3 = 475N
1.13 × 555000 × 1.95 = 475N
1222942.5 = 475N
1222942.5/475 = N
2574.61 = N (how many months to pay off his house)
2574.61 months/ 12 months = 214.55 years
(it will take Raymond 214.55 years to pay off his house)
- how old will Raymond be at that time? (ans: 259.55 years, dead over three times)
Right now, Raymond is 45 years old.
Raymond will be 45 + 214.55 = 259.55 years when he pays off his house
- how old will his kids be?
Older kid, age 6 now. S/he will be 6 + 214.55 = 220.55 years
Younger kid, age 5 now will be 5 + 214.55 = 219.55 years
In addition, they have to buy a car to drive to work since the town of Far Far Away is 90 minutes away from their offices. The car costs $28,000
Without a down payment, the car payment calculation is
1.13T × 1.553 = 155N
c) Calculate how many months it will take Raymond and his wife to pay off their car.
1.13T × 1.553 = 155N
1.13 x 28000 × 1.55 x 1.55 x 1.55 = 155N
1.13 x 28000 x 3.72 = 155N
117700.8 = 155N
117700.8/155 = N
759.36 months = N (or 63.28 years)
d) After the 1.553 factor, how much is the car now without a down payment?
e) Is this a good idea not to have a down payment for their townhouse and car? Explain.
e) Is this a good idea not to have a down payment for their townhouse and car? Explain.
- it is a bad idea
- end up paying a lot more for the product (perhaps twice as much)
- takes a LONG time to pay it off
- even if you have to work an extra job to earn more money
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