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Suppose that you see a house you would want to call your own, and the seller of the house gives you two options: 1) purchase the house right now with a mortgage and 2) entering a contract called "rent to own" that requires you to rent the house for 3 years first, then purchase the house (maybe still with a mortgage, but that's irrelevant to our assignment).
The mortgage-purchase option is quite straight forward and standard. You pay the down payment (0 percent to 20 percent of the house price), and negotiate a yearly interest rate to borrow the rest of the funds (called mortgage principal amount, or the initial mortgage balance) from a money lender, and start to pay back the money month by month with a (pre-determined) monthly payment.
At the end of each month, when you make a mortgage payment, the lender will calculate the interest accrued for the month by multiplying the mortgage balance with the monthly interest rate. To simplify things, we'll divide the yearly interest rate by 12 and use the result as the monthly interest rate. Your payment will pay off the interest accrued in the month first, then the rest of the payment will pay down the mortgage principal. So after one payment, your mortgage balance would be the old mortgage balance minus the difference between your payment and the interest accrued.
For the rent-to-own option, you and the seller essentially agree that you will buy the house after renting it for 3 years. You need to negotiate with the seller a 3 year renting contract. The monthly rent is usually higher than the market renting price. Then you also need to negotiate with the seller what percentage of the rent will be saved and used towards purchasing the house after the renting contract expires.
You are asked to build two Excel models to compare and figure out, that in both scenarios, how much in total you have paid out in the 3 years, and how much debt you still have after the 3 years. In the mortgage-purchase case, the debt you still have would be the mortgage balance after the 3 years. And in the rent-to-own case, the debt would be the difference between the house price and the savings you made through the monthly rent.
In one worksheet named "Mortgage-Purchase", design and develop a table showing the following columns for 36 months:
And in the end, show the total amount of money paid out (including the down payment and all the monthly payments), and the total debt amount still owing. Highlight the cells that contain these two results.
In this model, treat your house price, down payment amount, the interest rate, and the monthly payment as model parameters, so that if each of these numbers changes, your model display should change accordingly.
In a second worksheet named "Rent-To-Own", design and develop a table showing the following columns for 36 months:
In this model, treat the house price, monthly rent, and the percentage of the rent saved as the model parameters. Note that you should also link the house price in this model with the house price in the "Mortgage-Purchase" model using cell reference.
And in the end of the "Rent-To-Own" model, also show the total amount of money paid out (that's all the monthly rent payments), and the total debt amount still owing to purchase the house. Highlight the cells that contain these two results.
Save both worksheets containing your work to a workbook with meaningful file name.
Before submitting your assignment, you need to check at least the following things:
How to submit:
To submit your assignment, login to your VIU Learn account, find the CSCI 112 course page, click on the "Assessment" drop-down menu, click on the "Assignments" item, then click on the assignment folder named "A2". Then you can click on the "Add a File" button to browse and upload your Excel solution file.
If you have difficulties to make the VIU Learn submission work, please email me to let me know and attach your Excel solution file with your email.