You just borrowed $400,000 using a 25 year home loan that's interest-only for the first 5 years, and principal and interest (P&I) for the remaining 20 years. The interest rate is 5.4% pa compounding monthly which is not expected to change. Which of the following statements is NOT correct? Select one: a.) The effective monthly rate is 0.045 per month, given as a decimal. If the interest rate falls, the IO and P&I monthly payments will fall. b.) If the IO term was one year shorter so the P&I term was one year longer, then the monthly payments over the P&I term would be lower. c.) The IO loan's perpetuity factor' is 222.222222, while the P&I loan's annuity factor is 146.573495. d.) The IO loan payments will be $1,800 per month, rounded to the nearest cent. e.) The P&I loan payments will be $2,729.01 per month, rounded to the nearest cent.
You just borrowed $400,000 using a 25 year home loan that's interest-only for the first 5 years, and principal and interest (P&I) for the remaining 20 years. The interest rate is 5.4% pa compounding monthly which is not expected to change. Which of the following statements is NOT correct? Select one: a.) The effective monthly rate is 0.045 per month, given as a decimal. If the interest rate falls, the IO and P&I monthly payments will fall. b.) If the IO term was one year shorter so the P&I term was one year longer, then the monthly payments over the P&I term would be lower. c.) The IO loan's perpetuity factor' is 222.222222, while the P&I loan's annuity factor is 146.573495. d.) The IO loan payments will be $1,800 per month, rounded to the nearest cent. e.) The P&I loan payments will be $2,729.01 per month, rounded to the nearest cent.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:You just borrowed $400,000 using a 25 year home loan that's interest-only for the
first 5 years, and principal and interest (P&I) for the remaining 20 years.
The interest rate is 5.4% pa compounding monthly which is not expected to
change.
Which of the following statements is NOT correct?
Select one:
a.) The effective monthly rate is 0.045 per month, given as a decimal. If the interest
rate falls, the IO and P&I monthly payments will fall.
b.) If the IO term was one year shorter so the P&I term was one year longer, then
the monthly payments over the P&I term would be lower.
c.) The IO loan's perpetuity factor' is 222.222222, while the P&I loan's annuity factor
is 146.573495.
d.) The IO loan payments will be $1,800 per month, rounded to the nearest cent.
e.) The P&I loan payments will be $2,729.01 per month, rounded to the nearest
cent.
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