When you purchase a home by securing a mortgage, the total paid toward the principal is your equity in the home. The graph in the figure below shows for a certain 30-year mortgage the equity, in dollars, accrued after a given number of monthly payments. Equity in dollars 400,000 350,000- 300,000 250,000- 200,000- 150,000- 100,000- 50,000 +A 0 0 60 120 180 240 300 360 Number of monthly payments (a) Is the graph concave up or concave down? concave up concave down (b) The graph is increasing. What does the concavity you identified in part (a) say about how the equity grows? Equity is increasing at a decreasing rate. Equity is increasing at an increasing rate. Equity is not changing. O Equity is decreasing at a decreasing rate. Equity is decreasing at an increasing rate. (c) Use the graph to estimate the amount of the mortgage.

When you purchase a home by securing a mortgage, the total paid toward the principal is your equity in the home. The graph in the figure below shows for a certain 30-year mortgage the equity, in dollars, accrued after a given number of monthly payments. Equity in dollars 400,000 350,000- 300,000 250,000- 200,000- 150,000- 100,000- 50,000 +A 0 0 60 120 180 240 300 360 Number of monthly payments (a) Is the graph concave up or concave down? concave up concave down (b) The graph is increasing. What does the concavity you identified in part (a) say about how the equity grows? Equity is increasing at a decreasing rate. Equity is increasing at an increasing rate. Equity is not changing. O Equity is decreasing at a decreasing rate. Equity is decreasing at an increasing rate. (c) Use the graph to estimate the amount of the mortgage.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.17: Amortized Loans

Problem 1ST

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Concept explainers

Amortized Loans

The term "amortization" refers to spreading the value of a loan or a debt over a series of regular payments or installments comprising of both the principal and interest amount. It generally involves the process where in the value of a loan or an intangible asset is written down over its maturity period.

Question

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When you purchase a home by securing a mortgage, the total paid toward the principal is your equity in the home. The graph
in the figure below shows for a certain 30-year mortgage the equity, in dollars, accrued after a given number of monthly
payments.
Equity in dollars
400,000
350,000
300,000
250,000-
200,000
150,000
100,000
50,000
0
0
60 120 180 240 300 360
Number of monthly payments
(a) Is the graph concave up or concave down?
concave up
concave down
(b) The graph is increasing. What does the concavity you identified in part (a) say about how the equity grows?
Equity is increasing at a decreasing rate.
Equity is increasing at an increasing rate.
Equity is not changing.
Equity is decreasing at a decreasing rate.
Equity is decreasing at an increasing rate.
(c) Use the graph to estimate the amount of the mortgage.
$

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