Problems 1 - 13 relate to the following information: You are purchasing a house for $95,000. The lender requires a 10% down payment and will finance the rest with a 30 year fixed rate mortgage with monthly payments at 9 7/8% with two discount points charged.

5. Interest: How much interest is paid during the third year? [8315.40]

6. Interest: How much interest is paid in the first month? [$703.59]

7. Interest: How much interest is paid in the 37th month? [$690.26]

8. Principal: How much principal is paid during the first month? [$38.84]

9. Principal: How much principal is paid during the 37th month? [$52.17]

10. Interest: How much interest is paid in the second year? [$8371.02]

11. Interest: How much interest is paid over the life of the loan if the loan is held to maturity? [$181,777.71]

12. Construct an annualized amortization schedule for the first four years of the loan. [Amortization Schedule: Year 1: Balance = $85,012.18; Principal = $487.82; Interest = $8421.44; Year 2: Balance = $84,473.95; Principal = $538.23; Interest = $8371.02; Year 3: Balance = $83,880.09; Principal = $593.86; Interest = $8315.40; Year 4: Balance = $83,224.87; Principal = $655.22; Interest = $8254.03]

13. Calculate the effective interest rate for a: a. 2; b. 4; and c. 6 year holding period. [2-year holding period, 11.00%; 4-year holding period, 10.50%; 6-year holding period, 10.33%]