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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![### Analyzing Mortgage and Payments
#### Property Details:
- **Type:** Townhome
- **Price:** $335,000
- **Estimated Monthly Payment:** $1K/month
- **Specifications:**
- 2 beds
- 2.5 baths
- 1,376 sqft
- **Address:** 400 E Guenther St Unit 3103, San Antonio, TX 78210
#### Mortgage Calculation Exercise:
You have decided to purchase the townhome listed above on realtor.com and will be borrowing 95% of the listed price from Broadway Bank at an Annual Percentage Rate (APR) of 6% with monthly payments. Your down payment will be 5% of the listed price, which is $335,000.
The maturity period of the mortgage is set for 30 years with monthly payments. The following tasks outline the steps needed to analyze the mortgage payments:
1. **Timeline of Mortgage Payments:**
- **Objective:** Draw a timeline that depicts the cash flows from the mortgage payments.
- **Task:** Compute the payment and show your inputs and work.
2. **Outstanding Mortgage After 15 Years:**
- **Objective:** Compute the outstanding mortgage amount after making 15 years of payments.
- **Task:**
1. Show this point on the timeline.
2. Provide the detailed inputs used in the computation for full credit.
3. **Interest and Principal Components of Next Mortgage Payment:**
- **Objective:** Identify the interest and principal components of the next mortgage payment after making payments for:
- 5 years
- 15 years
- 25 years
### Educator's Notes:
- Utilize financial formulas and/or amortization tables to solve this problem.
- Ensure to comprehensively explain each step in your computations, including the formula used for calculating monthly mortgage payments.
- To accurately estimate the future outstanding mortgage and payment breakdowns, consider using Excel or another financial tool for precise calculations.
### Example Calculation:
Let’s briefly outline how one can approach these calculations:
1. **Calculate Monthly Payment Using the Mortgage Formula:**
- Formula: \( M = P[\frac{r(1+r)^n}{(1+r)^n-1}] \)
- \( M \) is the total monthly mortgage payment.
- \( P \) is the loan principal (the loan amount).
- \( r \) is](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F07be1cfa-9a0c-49d8-ae97-1aea588d5d3e%2F3f437ab4-3426-4846-964a-4fa9123e4404%2Fo12glzd_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Analyzing Mortgage and Payments
#### Property Details:
- **Type:** Townhome
- **Price:** $335,000
- **Estimated Monthly Payment:** $1K/month
- **Specifications:**
- 2 beds
- 2.5 baths
- 1,376 sqft
- **Address:** 400 E Guenther St Unit 3103, San Antonio, TX 78210
#### Mortgage Calculation Exercise:
You have decided to purchase the townhome listed above on realtor.com and will be borrowing 95% of the listed price from Broadway Bank at an Annual Percentage Rate (APR) of 6% with monthly payments. Your down payment will be 5% of the listed price, which is $335,000.
The maturity period of the mortgage is set for 30 years with monthly payments. The following tasks outline the steps needed to analyze the mortgage payments:
1. **Timeline of Mortgage Payments:**
- **Objective:** Draw a timeline that depicts the cash flows from the mortgage payments.
- **Task:** Compute the payment and show your inputs and work.
2. **Outstanding Mortgage After 15 Years:**
- **Objective:** Compute the outstanding mortgage amount after making 15 years of payments.
- **Task:**
1. Show this point on the timeline.
2. Provide the detailed inputs used in the computation for full credit.
3. **Interest and Principal Components of Next Mortgage Payment:**
- **Objective:** Identify the interest and principal components of the next mortgage payment after making payments for:
- 5 years
- 15 years
- 25 years
### Educator's Notes:
- Utilize financial formulas and/or amortization tables to solve this problem.
- Ensure to comprehensively explain each step in your computations, including the formula used for calculating monthly mortgage payments.
- To accurately estimate the future outstanding mortgage and payment breakdowns, consider using Excel or another financial tool for precise calculations.
### Example Calculation:
Let’s briefly outline how one can approach these calculations:
1. **Calculate Monthly Payment Using the Mortgage Formula:**
- Formula: \( M = P[\frac{r(1+r)^n}{(1+r)^n-1}] \)
- \( M \) is the total monthly mortgage payment.
- \( P \) is the loan principal (the loan amount).
- \( r \) is
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