Net Present Value

Feb 3rd, 2012
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California Institute of Technology
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Having heard of your knowledge of present value techniques, you have been asked to testify as an expert witness in the following lawsuit. Several homeowners in a nearby community have organized to protest against alleged gouging on the part of a local lending institution. One resident presents his payment book as evidence. The resident has a 30-year, fixed rate loan at 6 percent interest for $200,000. He got the loan 10 years ago and has been making equal annual payments of $14,529.60 ever since. He observes that he has paid the lending company $145,296.00 yet his payment book indicates that the principal due on the loan has only declined by $33,345.40. He presents this as obvious proof of "gouging on the part of the money changers". Required: Do you agree? Why, why not? (Support your answer with any relevant calculations.)

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Having heard of your knowledge of present value techniques, you have been asked totestify as an expert witness in the following lawsuit.Several homeowners in a nearby community have organized to protest against allegedgouging on the part of a local lending institution. One resident presents his payment bookas evidence.The resident has a 30-year, fixed rate loan at 6 percent interest for $200,000. He got theloan 10 years ago and has been making equal annual payments of $14,529.60 ever since.He observes that he has paid the lending company $145,296.00 yet his payment bookindicates that

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