What is the profit of buying and selling these cash flows?
These problem's question: What is the profit of buying and selling these cash flows?
A finance organization sells a bond for a future cash flow of $2315.57 per month at an imputed interest rate of 2% per year compounded monthly for 360 months (30 years) and paid in arrears.
The same finance organization buys a house and puts the house within a corporation owned by the organization to own the house until the cash flow of $2315.57 per month for 360 months (30 years) from resident is paid at an imputed interest rate of 3.75% per year compounded monthly for 360 months (30 years) and paid in arrears. There is a schedule of lump sum payments by which the resident can repurchase the remaining cash flow, if so desired. The costs to the finance organization to acquire the remaining value of the house, title, incorporate, etc. the house is the purchase cost of the cash flow from the resident of the house. There may have been a initial large payment giving the resident partial ownership of the house owning corporation.
The phrase "paid in arrears" means "paid at the end of month for the preceding month."
The answer is the bond selling price less the house costs. I am entering the rounded integer amount as a real number so that the usual Brilliant allowance to permitted. This problem is the difference of the net present values of two paid in arrears annuities.
I realize these are not necessarily normal business practices. I tried to state the problem in a form so that interest would not be stated as being paid or received.
The answer is 126476.00.
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1 solution
TimeValue [ Annuity [ 2 3 1 5 . 5 7 , 3 0 , 1 2 1 ] , EffectiveInterest [ 0 . 0 2 , 1 2 1 ] , 0 ] − TimeValue [ Annuity [ 2 3 1 5 . 5 7 , 3 0 , 1 2 1 ] , EffectiveInterest [ 0 . 0 3 7 5 , 1 2 1 ] , 0 ] ⇒ 1 2 6 4 7 5 . 7 4 6 6 4 9 0 1 8
Answer rounded to nearest integer as a real number.