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Problem 5 - 4 7 Amortizing Loans and Inflation ( LO 3 ) Suppose you take out a $ 1 1 7 , 0 0
Problem Amortizing Loans and Inflation LO
Suppose you take out a $year mortgage loan to buy a condo. The interest rate on the loan is 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 years halfway through the life of the loan
f If the inflation rate is what is the real value of the first yearend payment?
g If the inflation rate is what is the real value of the last yearend payment?
h Now assume the inflation rate is and the real interest rate on the loan is unchanged. What must be the new nominal interest
rate?
i Recompute the amortization table.
i What is the real value of the first yearend payment in this highinflation scenario?
j What is the real value of the last payment in this highinflation scenario?
Complete this question by entering your answers in the tabs below.
What is your annual payment on the loan?
Note: Do not round intermediate calculations. Round your answer to decimal places.
Annual payment Note: exact question is on website but incorrect
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