Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 2, Problem 36PS
Amortizing loans Suppose that you take out a $200,000, 20-year mortgage loan to buy a condo. The interest rate on the loan is 6%, and payments on the loan are made annually at the end of each year.
- a. What is your annual payment on the loan?
- b. Construct a mortgage amortization table in Excel similar to Table 2.1, showing the interest payment, the amortization of the loan, and the loan balance for each year.
- c. What fraction of your initial loan payment is interest? What about the last payment? What fraction of the loan has been paid off after 10 years? Why is the fraction less than half?
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Suppose you take out a $117,000, 20-year mortgage loan to buy a condo. The interest rate on the loan is 5%. To keep things simple,
we will assume you make payments on the loan annually at the end of each year.
a. What is your annual payment on the loan?
b. Construct a mortgage amortization.
c. What fraction of your initial loan payment is interest?
d. What fraction of your initial loan payment is amortization?
e. What is the total of the loan amount paid off after 10 years (halfway through the life of the loan)?
f. If the inflation rate is 3%, what is the real value of the first (year-end) payment?
g. If the inflation rate is 3%, what is the real value of the last (year-end) payment?
h. Now assume the inflation rate is 6% and the real interest rate on the loan is unchanged. What must be the new nominal interest
rate?
i-1. Recompute the amortization table.
i-2. What is the real value of the first (year-end) payment in this high-inflation scenario?
j. What is the real value of the last…
You plan to purchase a $220,000 house using a 15-year mortgage obtained from
your bank. The mortgage rate offered to you is 4.75 percent. You will make a down
payment of 20 percent of the purchase price.
a. Calculate your monthly payments on this mortgage.
b. (1) Construct the amortization schedule for the mortgage.
b. (2) How much total interest is paid on this mortgage?
Complete this question by entering your answers in the tabs below.
Req A
Req B1
Amortization
Schedule
Req B2 Total
Interest
Construct the amortization schedule for the mortgage?
Note: Round your intermediate calculations and final answers to 2 decimal places. (e.g.
Real-World Amortization
Remaining
Month
Total Payment
Interest
Principal
Balance
1
696.67
672.32
175,327.68
2
175,327.68
694.01
1,347.30
174,652.70
3
691.33
173,975.05
179
10.77
1,363.59
180
5.40
176,000.00
0.00
A borrower has taken out a 30-year mortgage for $104,000 at an annual rate of 12%.
a. Use the table to find the monthly payment for this mortgage.
b. Construct the first three lines of an amortization schedule for this mortgage.
c. Assume that the borrower has decided to pay an extra $200 per month to pay off the mortga
more quickly. Find the first three lines of your payment schedule under this assumption.
Click the icon to view a table of monthly payments on a $1,000 loan.
a. The monthly payments for this mortgage are $
(Type an integer or a decimal.)
Enter your answer in the answer box and then click Check Answer.
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Chapter 2 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 2 - (FV) In 1880, five aboriginal trackers were each...Ch. 2 - Prob. 2SQCh. 2 - (PV) Your company can lease a truck for 10,000 a...Ch. 2 - (RATE) Ford Motor stock was one of the victims of...Ch. 2 - Prob. 5SQCh. 2 - Prob. 6SQCh. 2 - Prob. 8SQCh. 2 - (NOMINAL) What monthly compounded interest rate...Ch. 2 - Future values If you invest 100 at an interest...Ch. 2 - Discount factors If the PV of 139 is 125, what is...
Ch. 2 - Prob. 3PSCh. 2 - Prob. 4PSCh. 2 - Opportunity cost of capital Which of the following...Ch. 2 - Perpetuities An investment costs 1,548 and pays...Ch. 2 - Growing perpetuities A common stock will pay a...Ch. 2 - Prob. 8PSCh. 2 - Present values What is the PV of 100 received in:...Ch. 2 - Continuous compounding The continuously compounded...Ch. 2 - Compounding intervals You are quoted an interest...Ch. 2 - Future values and annuities a. The cost of a new...Ch. 2 - Prob. 13PSCh. 2 - Present values A factory costs 800,000. You reckon...Ch. 2 - Present values A machine costs 380,000 and is...Ch. 2 - Opportunity cost of capital Explain why we refer...Ch. 2 - Present values A factory costs 400,000. It will...Ch. 2 - Present values and opportunity cost of capital...Ch. 2 - Prob. 19PSCh. 2 - Prob. 20PSCh. 2 - Annuities David and Helen Zhang are saving to buy...Ch. 2 - Annuities Kangaroo Autos is offering free credit...Ch. 2 - Present values Recalculate the NPV of the office...Ch. 2 - Prob. 24PSCh. 2 - Prob. 25PSCh. 2 - Continuous compounding How much will you have at...Ch. 2 - Perpetuities You have just read an advertisement...Ch. 2 - Compounding intervals Which would you prefer? a....Ch. 2 - Compounding intervals A leasing contract calls for...Ch. 2 - Annuities Several years ago, The Wall Street...Ch. 2 - Prob. 31PSCh. 2 - Prob. 32PSCh. 2 - Prob. 33PSCh. 2 - Prob. 34PSCh. 2 - Prob. 35PSCh. 2 - Amortizing loans Suppose that you take out a...Ch. 2 - Prob. 37PSCh. 2 - Annuities Use Excel to construct your own set of...Ch. 2 - Declining perpetuities and annuities You own an...
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