Question
You have taken out a 30-year fixed-rate mortgage for $500,000.00 that requires you to make a fixed monthly payment every month for the next 360
You have taken out a 30-year fixed-rate mortgage for $500,000.00 that requires you to make a fixed monthly payment every month for the next 360 months, with the first payment being made exactly one month from now. The stated interest rate is 4 percent, compounded monthly.
What are the monthly payments?
For the first payment, what is the amount of that payment that repays principle and how much of that payment is an interest payment?
Principle repayment = ________________;
Interest payment = _______________________.
Right after you make the first monthly payment (i.e., essentially one month from now), using your answers to be above, what will be the remaining principle on the loan?
Right after you make your first payment, what is the present value of the remaining monthly payments using the stated interest rate of 4 percent, compounded monthly? How does this compare to your answer to c above?
Using the result you can infer from comparing c and d above, answer the following question. After your have made 180 monthly payments, (i) what is the remaining principle, (ii) how much of the 181st payment is payment of interest, (iii) how much of the 181st payment is to repay principle. (Do not go through the lengthy process of building a 181 period spreadsheet
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