Interest and Financial Models

(We will assume the value of the asset is equal to the original mortgage amount). We will explore these ideas in the problems below. Since it is important to not round until the final step of the calculations, the spreadsheet applet above and its built-in formulas will be very helpful answering the questions below. Mr. Lahey needs a loan of $136,750 to purchase a house. He opts for a 26 year mortgage with the Sunnyvale Credit Union, with a 6.699% interest rate, compounded monthly . money? the duration of the loan in 85 . The future value of the loan will be calculated in cell B6. We will round this value to the nearest cent and use the rounded value for future calculations. From the perspective of Sunnyvale Credit Union, the Future Value of the loan will be : (round to the nearest cent). (b) From the list below, identify the formula used by the spreadsheet to compute the answer to part (a). A. rB=(1+nr)n1 B. F=P(1+nr)nt Z. F=(nr)P((1+nr)nt1) D. F=P(1+rt) E. F=Peri F. None of these t=P=n=r=m= payments as an ordinary annuity, with a goal of reaching the future value found in part (a). To use the spreadsheet, follow these steps. (i) Enter the future value of the annuity in cell B10 (using value from part (a), rounded to the nearest cent). (iii) Enter the total number of periods (i.e, total number of payments) in B12. Then, the payment will display in B13. Sunnyvale Credit Union will require a monthly payment of $ (round to the nearest cent) in their mortgage contract with Mr. Lahey. (e) From the list below, identify the formula used by the spreadsheet to compute the answer to part (d). A. F=P(1+nr)nt B. rB=(1+nr)n1 C. F=(nr)P((1+nr)nt1) D. F=Pert E. F=P(1+rt) F. None of these t=n=r= (f) Fill in the blanks below with the values that should be used for each variable in the formula chosen in part (e). If a letter is listed that is not part of the formula, enter "NONE" in the blank. t=n=r=F= Determine all of the following information about Mr. Lahey's loan. For each step, use the value of the payment rounded to the nearest cent. Total value of the house (amount of original loan) is : Mr. Lahey's monthly amortization payments will each be $ The total number of amortization payments over the 26 year term will be The total amount that Mr. Lahey will pay back to Sunnyvale Credit Union over the full 26 years will be : The total amount of interest that Mr. Lahey will pay over the term of the loan will be: RemainingBalance=P(nr1(1+nr)nt)=P(120.060991(1+120.06699)1211) Thus, the balance remaining on the loan after 15 years will be $ (to the nearest cent). to 3 decimal places) after 15 years