Answer

Department of Public Administration

College of Urban Planning and Public Affairs

University of Illinois at Chicago

PA 494: Special Topics: Capital Markets

Snyder—Fall 2015

PROBLEM SET 2 ANSWERS

Chapter 2

36. a. First we must determine the 20-year annuity factor at a 6% interest rate.

20-year annuity factor = [1/.06 – 1/.06(1.06)20) = 11.4699.

Once we have the annuity factor, we can determine the mortgage payment.

Mortgage payment = $200,000/11.4699 = $17,436.91.

b.

Year | Beginning Balance ($) | Year-End Interest ($) | Total Year-End Payment ($) | Amortization of Loan ($) | End-of-Year Balance ($) |

1 | 200,000.00 | 12,000.00 | 17,436.91 | 5,436.91 | 194,563.09 |

2 | 194,563.09 | 11,673.79 | 17,436.91 | 5,763.13 | 188,799.96 |

3 | 188,799.96 | 11,328.00 | 17,436.91 | 6,108.91 | 182,691.05 |

4 | 182,691.05 | 10,961.46 | 17,436.91 | 6,475.45 | 176,215.60 |

5 | 176,215.60 | 10,572.94 | 17,436.91 | 6,863.98 | 169,351.63 |

6 | 169,351.63 | 10,161.10 | 17,436.91 | 7,275.81 | 162,075.81 |

7 | 162,075.81 | 9,724.55 | 17,436.91 | 7,712.36 | 154,363.45 |

8 | 154,363.45 | 9,261.81 | 17,436.91 | 8,175.10 | 146,188.34 |

9 | 146,188.34 | 8,771.30 | 17,436.91 | 8,665.61 | 137,522.73 |

10 | 137,522.73 | 8,251.36 | 17,436.91 | 9,185.55 | 128,337.19 |

11 | 128,337.19 | 7,700.23 | 17,436.91 | 9,736.68 | 118,600.51 |

12 | 118,600.51 | 7,116.03 | 17,436.91 | 10,320.88 | 108,279.62 |

13 | 108,279.62 | 6,496.78 | 17,436.91 | 10,940.13 | 97,339.49 |

14 | 97,339.49 | 5,840.37 |...