Question

1. A partially amortized loan has been negotiated for $150,000 with terms 6%, 30 years (monthly compounding). Part “a” and “b” are separate questions.

1. Set the LB at $120,000 calculate the MP with a holding period of 12 years.
2. The MP has been set at $700. Calculate the LB after 12 years have lapsed (Balloon payment).

Answer 1

Solution :-

(A)

Loan Balance = $120,000

Total Payment in 12 Years = 12 * 12 = 144

Now monthly Rate of Interest = 6% / 12 = 0.50% per month

Now Monthly Payment Amount = $120,000 / PVAF ( 0.50% , 144 )

= $120,000 / 102.4747

= $1,171.02

(B) Total Payments in 12 years = 12 * 12 = 144

Now Present Value of total Payments = $700 * PVAF ( 0.50% , 144 )

= $700 * 102.4747

= $71,732.32

LB after 12 years = ( $120,000 - $71,732.32 ) * FVF ( 0.50% ,144 )

= $48,267 * ( 1 + 0.005 )¹⁴⁴

= $98,984.98

If there is any doubt please ask in comments