Business Mathematics Brief 12th Edition by Stanley Salzman ,Gary Clendenen, Charles Miller

Exercise 147

CITIGROUP INC.-HOME FINANCING
www.citigroup.com Facts:
• 1812: Founded in New York City
• 1914: Opened first international branch, in Argentina
• 1998: Merged with Travelers Insurance Group
• 2008: Lost $27.7 billion Took funds from government during financial crisis
• 2010: Revenue estimated to fall 40% compared to 2007
Citigroup Inc. (Citi) provides various banking, lending, insurance, and investment services to individual and corporate customers worldwide. It operates more than 7200 branches and 7000 ATMs. Citi had more than $150 billion in credit-card loans outstanding in 2010 in addition to huge volumes of home loans and business loans.
The financial crisis of 2008-10 created very serious problems for Citigroup. To illustrate the nature of some of the problems, we use the example of one family: Tom and Marie Duston purchased their first home in 2008 when home loans were still very easy to get. They bought a beautiful new 4-bedroom, -bath home with a down payment of only $8500.
They financed the loan balance of $306,500 using an adjustable rate mortgage (ARM). The monthly payment of $1100 did not include taxes and insurance. In fact, the monthly payment was all interest, meaning that nothing was applied against the debt each month. Find the monthly payment given taxes of $6400 per year and insurance of $980 per year.