Question
Recall that the monthly payment ( PMT ) is constant for a fully amortizing residential mortgage. If BAL denotes the original loan balance, N denotes
Recall that the monthly payment (PMT) is constant for a fully amortizing residential mortgage. If BAL denotes the original loan balance, N denotes the number of years, and Y is the (annual) interest rate, then PMT can be obtained by solving the equation:
BAL = PMT/(1+Y/12) + PMT/(1+Y/12)2 + PMT/(1+Y/12)3 + PMT/(1+Y/12)12N
[1] Can you give a brief explanation of this equation?
Its a straight present value calculation. It says that when the lender loans out BAL and receives the payment stream PMT (each month) then the lenders yield equals Y.
[2] Can you sum the geometric series to get a more compact expression?
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Small Business Management Launching and Growing New Ventures
Authors: Justin Longenecker, Leo Donlevy, Terri Champion, William Petty, Leslie Palich, Frank Hoy
6th Canadian edition
176532218, 978-0176532215
