Kevin takes out a home loan for $250,000. Payments are made at the end of every month for 30 years. The annual effective interest rate is 7%. At the end of the 10th year, just after the payment is made, Kevin pays an additional $10,000 in principle. The size of the future level payment doesn't change, but the loan will be paid off early. The last payment will be smaller than the level payment amount. a) Calculate the outstanding loan balance just after the additional $10,000 in principle is paid. b) Calculate the size and amount of the last payment. c) Calculate the total interest paid on the loan over the full time period. d) Calculate the amount of interest saved by making this principle payment (i.e. the difference between interest that would have been paid on the initial loan and interest paid in part c))
Kevin takes out a home loan for $250,000. Payments are made at the end of every month for 30 years. The annual effective interest rate is 7%. At the end of the 10th year, just after the payment is made, Kevin pays an additional $10,000 in principle. The size of the future level payment doesn't change, but the loan will be paid off early. The last payment will be smaller than the level payment amount. a) Calculate the outstanding loan balance just after the additional $10,000 in principle is paid. b) Calculate the size and amount of the last payment. c) Calculate the total interest paid on the loan over the full time period. d) Calculate the amount of interest saved by making this principle payment (i.e. the difference between interest that would have been paid on the initial loan and interest paid in part c))
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Kevin takes out a home loan for $250,000. Payments are made at the end of
every month for 30 years. The annual effective interest rate is 7%. At the end of the 10th year,
just after the payment is made, Kevin pays an additional $10,000 in principle. The size of the
future level payment doesn't change, but the loan will be paid off early. The last payment will be
smaller than the level payment amount.
a) Calculate the outstanding loan balance just after the additional $10,000 in principle is paid.
b) Calculate the size and amount of the last payment.
c) Calculate the total interest paid on the loan over the full time period.
d) Calculate the amount of interest saved by making this principle payment (i.e. the difference
between interest that would have been paid on the initial loan and interest paid in part c))
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