Question

John borrowed $84,000 at 9.60% compounded monthly He agreed to repay the loan in equal monthly payments over a 15 year amortization term.

(a) What is the size of the monthly payment? Enter answer to 2 decimal places

For parts (b),(c) and (d) DO NOT round the monthly payments but use exact results as found in your calculator. Nevertheless enter answers you find in each answer box to 2 decimal places.

(b) How much of the 22nd payment is interest?

(c) How much of the 94th payment goes towards principal?

(d) How much principal was paid down in the second year?

(e) Now assume that in part (a) you had rounded the payments DOWN to the nearest dollar, what would be the size of the final payment? Round down to nearest dollar means for example 121.8 is rounded to $121.00 (NOT 122)

(f) Re-do this problem by going back to the first step in part (a) without making any rounding of the payments. Assume 4 years has gone by and after the 48th payment, the loan term is reset, with the banks new rate becoming 8.2% with semi-annual compounding The borrower also pays down an extra $4000 at this time. What would be the new monthly payments?

Answer 1