a.
To calculate: Monthly payments.
a.
Explanation of Solution
Formula to calculate monthly payment is as follows:
Monthly payment=Principal×(MLC at 6% for 25 years)
Monthly payment=$80,000×0.006443=$515.44
b.
To calculate: Interest and principle payments during month 1.
b.
Explanation of Solution
Formula to calculate interest is as follows:
Interest=Principle×Interest rate12
Substitute equation with $80,000 for principle, 6% for interest rate to calculate interest.
Interest=$80,000×6%12=$400
Calculation of monthly payment during month 1 is as follows:
Monthly payment=Monthly payment−Interest
Substituting equation with 515.44 for monthly payment and $400 for interest to calculate payment during month 1.
Monthly payment=$515.44−$400=$115.44
c.
To calculate: Total principle and total interest paid over 25 years.
c.
Explanation of Solution
Formula to calculate total payment is as follows:
Total payment=Monthly payment×25×24
Substituting equation with $515.44 for monthly payment to calculate total payments.
Total payment=$515.44×25×24=$154,632
Total payment is $154,632.
Formula to calculate total interest payment is as follows:
Total interest payment=Total payments−principle payment
Substituting equation with $154,632 for total payments and $80,000 for principle payments to calculate total interest payment.
Total interest payment=$154,632−$80,000=$74,632
d.
To determine: Outstanding loan balance if the loan is repaid at the end of year 10.
d.
Explanation of Solution
Formula to calculate
Future value=Present value(1+i)n
Substituting equation with $80,000 for
Future value=$80,000(1+0.50)120=$61,081
e.
To calculate: Total monthly interest and principle payments through 10 years.
e.
Explanation of Solution
Formula to calculate total interest payment is as follows:
Total payments=Monthly payment×n
Substituting equation with $515.44 for monthly interest and 120 for n to calculate total payment.
Total payments=$515.44×120=$61,852.80
Formula to calculate total principle payment is as follows:
Total principle payments=Loan amount−Present value of the loan at the end of 10 years
Substituting equation with $80,000 for loan amount and $61,081.77 for present value to calculate total principle payment.
Total principle payments=$80,000−$61,081.77=$18,918.23
Formula to calculate total interest payment is as follows:
Total interest payments=Total payments−total principle payment
Substituting equation with $61,852 for total payments and $18,918.23 for total principle payment to calculate total interest payment.
Total interest payments=$61,852.80−$18,918.23=$42,934.57
f.
To calculate: Breakdown of interest and principle during month 50.
f.
Explanation of Solution
Present value of the outstanding loan at the end of month 49 is $73,608.28, formula to calculate interest payment is as follows:
Total interest payments=outstanding loan balance×interest rate
Substituting equation with $73,608.28 for outstanding loan and 0.50% for the interest rate.
Total interest payments=$73,608.28×0.50%=$368.04
Formula to calculate principle payment is as follows:
Principle payment=Total payment−Interest payment
Substituting equation with $515.44 for total payment and $368.04 for interest payment to calculate principle payment.
Principle payment=$515.44−$368.04=$147.40
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Chapter 4 Solutions
Real Estate Finance And Investments
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