Suppose you take out a $106,000, 20-year mortgage loan to buy a condo. The interest rate on the loan is 6%. 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? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. Construct a mortgage amortization. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Year Beginning-of- Year Balance Year-End Interest Due on Balance Year-End Payment Amortization End-of-Year of Loan Balance 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 c. What fraction of your initial loan payment is interest? (Do not round intermediate calculations. Enter your answers as a whole percent.) Initial interest % d. What fraction of your initial loan payment is amortization? (Do not round intermediate calculations. Enter your answers as a whole percent.) Amortization % e. What fraction of the loan has been paid off after 10 years (halfway through the life of the loan)? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Paid off loan f. If the inflation rate is 2%, what is the real value of the first (year-end) payment? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Real value of the first payment g. If the inflation rate is 2%, what is the real value of the last (year-end) payment? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Real value of the last payment h. Now assume the inflation rate is 8% and the real interest rate on the loan is unchanged. What must be the new nominal interest rate? (Do not round intermediate calculations. Enter your answers as a whole percent.) New nominal interest rate % i-1. Recompute the amortization table. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Year Beginning-of- Year Balance Year-End Interest Due on Balance Year-End Payment Amortization End-of-Year of Loan Balance 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 1-2. What is the real value of the first (year-end) payment in this high-inflation scenario? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Real value of the first payment What is the real value of the last payment in this high-inflation scenario? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Real value of the last payment
