Fin215

Mortgage Q:

1) Calc. monthly installment amount

2) What is the principal amount o/s after x years? E.g. mortgage is for 30 years. After paying 8 years, what is the loan principal o/s?

3) How much principal amount was repaid in the x year e.g. 9th year?

4) How much interest is paid in the 9th year?

You have just purchased a car and taken out a $50,000 loan. The loan has a five-year term with monthly payments and an APR of 6%.

a. How much will you pay in interest, and how much will you pay in principal, during the first month, second month, and first year? (Hint: Compute the loan balance after one month, two months and one year.)

b. How much will you pay in interest, and how much will you pay in principal, during the fourth year (i.e., between there and four years from now)?

The mortgage on your house is five years old. It required monthly payments of $1402, had an original term of 30 years, and had an interest rate of 10% (APR). In the intervening five years, interest rates have fallen and so you have decided to refinance—that is, you will roll over the outstanding balance into a new mortgage. The new mortgage has a 30-year term, requires monthly payments, and has an interest rate of 6 5⁄8% (APR).

a. What monthly repayments will be required with the new loan?

b. If you still want to pay off the mortgage in 25 years, what monthly payment should you make after you refinance?

c. Suppose you are willing to continue making monthly payments of $1402. How long will it take you to pay off the mortgage after refinancing?

d. Suppose you are willing to continue making monthly payments of $1402, and want to pay off the mortgage in 25 years. How much additional cash can you borrow today as part of the refinancing?

Suppose Acap Corporation will pay a dividend of $2.80 per share at the end of this year and $3 per share next year. You expect Acap’s stock price to be $52 in two years. If Acap’s equity cost of capital is 10%:

a. What...