Bruce bought an apartment at a price of $7,000,000 on January 1, 2020. He borrowed 70% of the property value from Bank at that time. The first monthly installment was due on January 31, 2020. The mortgage is a floating-rate one and has a maturity of 10 years. The interest rate on the loan is set equal to the prime rate minus 1.5%. On March 1, 2022, Bruce's apartment had a market value of $9,000,000. Bruce talked to Hang Seng Bank to arrange a new mortgage to replace the old one. In the new mortgage, Bruce borrowed 70% of the market value of his apartment. The new mortgage has a maturity of 10 years with the first monthly installment due on March 31, 2022. The interest rate is set equal to the prime rate minus 2.5%. The prime rate has been constant at 5% from January 2020 to March 2022. • (a) What is the monthly installment of the original mortgage? • (b) How much would Bruce receive from bank when the new mortgage was arranged to replace the old one on March 1, 2022? • (c) What is the monthly installment of the new mortgage?
Bruce bought an apartment at a price of $7,000,000 on January 1, 2020. He borrowed 70% of the property value from Bank at that time. The first monthly installment was due on January 31, 2020. The mortgage is a floating-rate one and has a maturity of 10 years. The interest rate on the loan is set equal to the prime rate minus 1.5%. On March 1, 2022, Bruce's apartment had a market value of $9,000,000. Bruce talked to Hang Seng Bank to arrange a new mortgage to replace the old one. In the new mortgage, Bruce borrowed 70% of the market value of his apartment. The new mortgage has a maturity of 10 years with the first monthly installment due on March 31, 2022. The interest rate is set equal to the prime rate minus 2.5%. The prime rate has been constant at 5% from January 2020 to March 2022. • (a) What is the monthly installment of the original mortgage? • (b) How much would Bruce receive from bank when the new mortgage was arranged to replace the old one on March 1, 2022? • (c) What is the monthly installment of the new mortgage?
Chapter5: Introduction To Business Expenses
Section: Chapter Questions
Problem 61P
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Question
Transcribed Image Text:Bruce bought an apartment at a price of $7,000,000 on January 1, 2020.
He borrowed 70% of the property value from Bank at that time. The first
monthly installment was due on January 31, 2020. The mortgage is a
floating-rate one and has a maturity of 10 years. The interest rate on the
loan is set equal to the prime rate minus 1.5%. On March 1, 2022, Bruce's
apartment had a market value of $9,000,000. Bruce talked to Hang Seng
Bank to arrange a new mortgage to replace the old one. In the new
mortgage, Bruce borrowed 70% of the market value of his apartment. The
new mortgage has a maturity of 10 years with the first monthly installment
due on March 31, 2022. The interest rate is set equal to the prime rate
minus 2.5%. The prime rate has been constant at 5% from January 2020 to
March 2022.
• (a) What is the monthly installment of the original mortgage?
• (b) How much would Bruce receive from bank when the new mortgage
was arranged to replace the old one on March 1, 2022?
• (c) What is the monthly installment of the new mortgage?
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