Suppose you take out a $107,000, 20-year mortgage loan to buy a condo. The interest rate...
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Suppose you take out a $107,000, 20-year mortgage loan to buy a condo. The interest rate on the loan is 4%. 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 10 years (halfway through the life of the loan)? f. If the inflation rate is 1%, what is the real value of the first (year-end) payment? g. If the inflation rate is 1%, what is the real value of the last (year-end) payment? h. Now assume the inflation rate is 7% and the real interest rate on the loan is unchanged. What must be the new nominal interest rate? 1-1. Recompute the amortization table. i-2. What is the real value of the first (year-end) payment in this high-inflation scenario? j. What is the real value of the last payment in this high-inflation scenario? Suppose you take out a $107,000, 20-year mortgage loan to buy a condo. The interest rate on the loan is 4%. 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 10 years (halfway through the life of the loan)? f. If the inflation rate is 1%, what is the real value of the first (year-end) payment? g. If the inflation rate is 1%, what is the real value of the last (year-end) payment? h. Now assume the inflation rate is 7% and the real interest rate on the loan is unchanged. What must be the new nominal interest rate? 1-1. Recompute the amortization table. i-2. What is the real value of the first (year-end) payment in this high-inflation scenario? j. What is the real value of the last payment in this high-inflation scenario?
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