Question

Show work through excel using formulas: but please actually show each step you use to do it on excel!

1. Assume you have taken out a balloon mortgage loan for $2,500,000 to finance the purchase of a commercial property. The loan has a term of 5 years, but amortizes over 25 years. Calculate the balloon payment at maturity (Year 5) if the interest rate on this loan is 4.5%.

A. $5,637.99 B. $13, 895.82 C. $2,196,447.59 D. $2,495,479.19

Answer #1

Computation of monthly payment | ||||

EMI = [P x R x (1+R)^N]/[(1+R)^N-1] | ||||

Where, | ||||

EMI= Equal Monthly Payment | ||||

P= Loan Amount | ||||

R= Interest rate per period | ||||

N= Number of periods | ||||

= [ $2500000x0.00375 x (1+0.00375)^300]/[(1+0.00375)^300 -1] | ||||

= [ $9375( 1.00375 )^300] / [(1.00375 )^300 -1 | ||||

=$13895.81 | ||||

Calculation of balloon payment | ||||

Present Value Of An Annuity | ||||

= C*[1-(1+i)^-n]/i] | ||||

Where, | ||||

C= Cash Flow per period | ||||

i = interest rate per period | ||||

n=number of period | ||||

= $13895.81[ 1-(1+0.00375)^-240 /0.00375] | ||||

= $13895.81[ 1-(1.00375)^-240 /0.00375] | ||||

= $13895.81[ (0.5927) ] /0.00375 | ||||

=
$2,196,447.28 |

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