EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202785
Author: DeMarzo
Publisher: VST
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Chapter 5, Problem 20P
Summary Introduction
To determine: The number of days it will take to pay off the mortgage without changing the EAR loan.
Introduction:
An effective annual rate is the interest rate that is actually earned at the end of one year. As the compounding period increases, the effective annual rate increases.
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Oppenheimer Bank is offering a 30-year mortgage with an APR of 5.25% based on monthly compounding. With
this mortgage, your monthly payments would be $2,000 per month. In addition, Oppenheimer Bank offers you the
following deal: Instead of making the monthly payment of $2,000 every month, you can make half the payment every
two weeks (so that you will make 52/2 = 26 payments per year). With this plan, how long will it take to pay off the
mortgage if the EAR of the loan is unchanged? Note: Make sure to round all intermediate calculations to at least 8
decimal places.
The number of payments will be
(Round to two decimal places.)
Oppenheimer Bank is offering a 30-year mortgage with an APR of 4.86% based on monthly compounding. With this mortgage your monthly payments would be
$1,952 per month. In addition, Oppenheimer Bank offers you the following deal: Instead of making the monthly payment of $1,952 every month, you can make half
the payment every two weeks (so that you will make 52/2 = 26 payments per year). With this plan, how long will it take to pay off the mortgage if the EAR of the loan
is unchanged? Note: Make sure to round all intermediate calculations to at least 8 decimal places.
The number of payments will be
which is approximately
years. (Round to two decimal places and enter the years rounded to the nearest whole number.)
Oppenheimer Bank is offering a 30-year mortgage with an APR of 4.88% based on monthly compounding. With this mortgage, your monthly payments would be $2,050 per month. In addition, Oppenheimer Bank offers you the following deal: Instead of making the monthly payment of $2,050 everymonth, you can make half the payment every two weeks (so that you will make 52/2=26 payments per year). With this plan, how long will it take to pay off the mortgage if the EAR of the loan is unchanged? Note: Make sure to round all intermediate calculations to at least 8 decimal places.
a. What is the number of payments?b. How long will it take to pay off the mortgage if the EAR of the loan is unchanged?
Chapter 5 Solutions
EBK CORPORATE FINANCE
Ch. 5.1 - Prob. 1CCCh. 5.1 - Prob. 2CCCh. 5.2 - How can you compute the outstanding balance on a...Ch. 5.2 - What is an amortizing loan?Ch. 5.3 - What is the difference between a nominal and real...Ch. 5.3 - How do investors expectations of future short-term...Ch. 5.4 - Prob. 1CCCh. 5.4 - How do taxes affect the interest earned on an...Ch. 5.5 - What is the opportunity cost of capital?Ch. 5.5 - Why do different interest rates exist, even in a...
Ch. 5 - Your bank is offering you an account that will pay...Ch. 5 - Which do you prefer: a bank account that pays 5%...Ch. 5 - Prob. 3PCh. 5 - Prob. 4PCh. 5 - You are considering moving your money to a new...Ch. 5 - Prob. 6PCh. 5 - Prob. 7PCh. 5 - You can earn 50 in interest on a 1000 deposit for...Ch. 5 - Prob. 9PCh. 5 - Prob. 10PCh. 5 - Prob. 11PCh. 5 - Prob. 12PCh. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - You have just sold your house for 1,000,000 in...Ch. 5 - Prob. 16PCh. 5 - Your mortgage has 25 years left, and has an APR of...Ch. 5 - Prob. 18PCh. 5 - Prob. 19PCh. 5 - Prob. 20PCh. 5 - Prob. 21PCh. 5 - Prob. 22PCh. 5 - The mortgage on your house is five years old. It...Ch. 5 - You have credit card debt of 25,000 that has an...Ch. 5 - Prob. 25PCh. 5 - Prob. 26PCh. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Suppose the term structure of risk-free interest...Ch. 5 - Prob. 30PCh. 5 - Prob. 31PCh. 5 - Suppose the current one-year interest rate is 6%....Ch. 5 - Figure 5.4 shows that Johnson and Johnsons...Ch. 5 - Prob. 34PCh. 5 - Prob. 35PCh. 5 - Prob. 36PCh. 5 - Your best friend consults you for investment...Ch. 5 - Suppose you have outstanding debt with an 8%...Ch. 5 - In the summer of 2008, at Heathrow Airport in...Ch. 5 - Your firm is considering the purchase of a new...Ch. 5 - Prob. 41P
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