Suppose that the mortgage loan described in question 10 is a one-year adjustable rate mortgage (ARM), which means that the 10.5% interest applies for only the first year.If the interest rate goes up to 12% in the second year of the loan, what will your new monthly payment be?
Suppose that the mortgage loan described in question 10 is a one-year adjustable rate mortgage (ARM), which means that the 10.5% interest applies for only the first year.If the interest rate goes up to 12% in the second year of the loan, what will your new monthly payment be?
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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Question
Suppose that the mortgage loan described in question 10 is a one-year adjustable rate
mortgage (ARM), which means that the 10.5% interest applies for only the first year.If the interest rate goes up to 12% in the second year of the loan, what will your new monthly payment be?
Transcribed Image Text:b)
Calculation of Monthly Payment is as follows:
B
22
Borrower Amount (PV)
$ 100.000.00
Given
23
Time Period in years
30
Given
24
APR
10.50%
Given
Compounding Period
Monthly Interest Rate (RATE)
25
12
Given
26
0.875%
=B24/B25
Time Period in Months (Nper)
Monthly Payments (PMT)
27
360
=B23*B25
28
914.74 =PMT(B26,B27,-B22)
Answer: Monthly Payment is
$914.74
Step3
c)
Here,
Up Front Cost is 2 points that means
$100,000*2% = $2,000 paid as upfront cost
Loan Amount get from Bank is $98,000
Calculation of True APR is as follows:
B
30
Up Front Cost
2%
Given
$100,000.00
$ 2.000.00
33 Amount Recevied from Bank (PV) S 98,000.00
31
Borrowed Amount
Given
32
Up Front Cost Paid
=B30*B31
Given
34
Time Period in years
30
Given
35
Time Period in Months (Nper)
360
=B34*12
Monthly Payment (PMT)
True APR
36
914.74
Calculated Above
37
10.75%
=RATE(B35,-B36,B33)*12
Answer: True APR is
10.75%
[?
Transcribed Image Text:CHAPTER 4 • ALLOCATING RESOURCES OVER TIME
143
10. You borrow $100,000 from a bank for 30 years at an APR of 10.5%. What is the
monthly payment? If you must pay two points up front, meaning that you only get
$98,000 from the bank, what is the true APR on the mortgage loan?
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