Question
You are a loan officer, and your next client is Sandra Patterson. Sandra wants to borrow $200,000 from the bank at 6 percent interest compounded
You are a loan officer, and your next client is Sandra Patterson. Sandra wants to borrow $200,000 from the bank at 6 percent interest compounded monthly to be repaid over thirty (30) years.
- Workings illustrating the payment to be paid monthly
- Amortization table for first 12 months
- Answers to the following questions:
i. Principal paid in the first month?
ii. Balance at the end of the 3rd month?
iii. Amount of interest in the last installment?
iv. Total interest paid?
Scenario 2-Pre-Payment
What would the new amortization table look like if Sandra decides to make additional payments on the principal of $1000 for the first four years?
Then what would be the answers to these questions:
- Principal paid in the first month?
- Balance at the end of the 3rd month?
- In what month will Sandra make your final payment?
- What is the amount of the final payment?
- What is the total interest paid?
- What is the difference in interest paid between Scenario 1 and 2?
- What is the advantage of the strategy proposed?
Scenario 3-Downpayment on Vanilla and Pre-payment Scenarios
Assume that after explaining Scenarios 1 and 2 to your boss, they recommend that Sandra make a down payment of $50,000, thereby reducing the loan to $450,000. Now repeat Scenario 1 and 2, each with this new loan amount, and answer all associated questions.
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