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To finance the purchase of a new home, a homebuyer takes-out a fully amortizing loan in the amount of $600,000 at 6% interest per year,
To finance the purchase of a new home, a homebuyer takes-out a fully amortizing loan in the amount of $600,000 at 6% interest per year, compounded monthly, for a term of 20 years.
(a) What are the monthly payments the borrower must make to the lender?
(b) What is the outstanding balance of the loan at the end of 8 years?
(c) At the end of year 8, the market rate of interest is 8%. What is the market value of the loan at the end of 8 years?
(d) If this loan is sold at market value at the end of year 8, is this loan sold at a discount?
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