New Venture Corporation has taken out a $5 million, 30-year, 10% mortgage on its new manufacturing facility. a. How much will New Venture pay each month to discharge this mortgage? b. How much of the first payment is for interest, and by how much does it reduce the balance owed? c. How much of the second payment is for interest, and by how much does it reduce the balance owed? How can I solve b and c from the attached solution (solution to a)? Thank you.
New Venture Corporation has taken out a $5 million, 30-year, 10% mortgage on its new manufacturing facility. a. How much will New Venture pay each month to discharge this mortgage? b. How much of the first payment is for interest, and by how much does it reduce the balance owed? c. How much of the second payment is for interest, and by how much does it reduce the balance owed? How can I solve b and c from the attached solution (solution to a)? Thank you.
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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New Venture Corporation has taken out a $5 million, 30-year, 10% mortgage on its new manufacturing facility.
a. How much will New Venture pay each month to discharge this mortgage?
b. How much of the first payment is for interest, and by how much does it reduce the balance owed?
c. How much of the second payment is for interest, and by how much does it reduce the balance owed?
How can I solve b and c from the attached solution (solution to a)? Thank you.
Transcribed Image Text:The mortgage refers to the type of loan that requires collateral against the loan. The lender of the mortgage
provides the facility to repay the full amount in periodic installments. This system reduces the burden of the
borrower. the monthly installment requires less payment. This can determine as follows:
r(1+r
Monthly payments = principal-
(1+r)-1
Here, r = monthly interest rate
t = no. of months
The given information: Mortgage amount=$ 5 million
Duration (t)= 30 years= (30 x 12=360 months), Interest rate (r)= 10% annually (10/12=0.83334%)
The monthly payments for the mortgage are:
r(1+r)
Monthly payments=principal-
(1+ry-1
0.008334(1.008334)360
=5, 0000, 0000-
(1.008334)60 – 1
(0.008334)(19.8421215626)
=5, 000, 000
(19.8421215626)-1
=5, 000, 000-0.165352335
18.8421215626
=5, 000, 000(0. 008775775)
=$43, 878. 37518
Hence, the monthly installment for the $ 5 million mortgages is $ 43,878.37518
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