Question
Consider your parent's home mortgage: 10 years ago your parents purchased a $240,000 home. At the time they paid 10% as a down payment, and
Consider your parent's home mortgage: 10 years ago your parents purchased a $240,000 home. At the time they paid 10% as a down payment, and borrowed the remaining 90% via a 30 year mortgage with a fixed interest rate of 6% APR. Payments were made monthly and are of a constant size each month. The first payment was paid one month after the purchase. Note: In many countries (for example, in the U.S.) on your personal taxes, you can often deduct interest paid on a home-which effectively lowers the amount you have to pay in taxes. Therefore, understanding how to compute interest paid month by month (and adding up the 12 months that comprised the tax year) is useful when it comes time to pay your taxes.
Note (Cont.): keep precision high, using 6 significant digits.
A) Between the 250th and 251st payments, how much principal is still outstanding? (answer in dollars and cents)
B) How much principal is outstanding immediately after the 251st payment is made?
C) Using your answers from Parts A and B, compute the reduction in principal from just after the 250th payment is made to just after the 251st payment is made.
D) Decompose the 251st payment into interest and reduction in principal. Compare the reduction in principal to your answer in Part C.
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