Question

The market value of a loan is: a The future value of the remaining payments b...

The market value of a loan is:

a

The future value of the remaining payments
b

The loan balance times one minus the market rate
c

The loan balance times one minus the original rate
d

The present value of the remaining payments

A mortgage loan in the amount of $50,000 is made at 12 percent interest for 20 years. Payments are to be monthly. What are the monthly payments if it is a negative amortizing loan and the loan balance will be $75,000 at the end of year 20?

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Answer #1

The market value of a loan is simply the present value of the remaining payments discounted at the market rate of interest i.e. option d is correct. Market Value is the current value of future sum of money or stream of cash flows given the specified rate of interest.

The amount of monthly payment for its loan balance of $75000 at the end of 20 years will be calculated using formula:

P(1+nf)/N where f is flat rate of interest,N is number of installments.n is number of years and P is principle amount

Installment=75000(1+20*.12)/240

=$1062.50

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