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ot(s) will not be graded because you have passed the close date Question 1 of 6 Melanie purchased a house for $400,000. She m

I have 6 Mortgage questions that need to be answered. thank you

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Answer #1

Part (a)

The monthly payment amount can be calculated using PMT function of excel. Inputs are:

  • Rate = interest rate per month. The given APR is compounded semi annually. If r is the effective monthly rate then, (1 + APR / 2)2 = (1 + r)12; Or (1 + 5.82% / 2)2 = 1.0590 = (1 + r)12; Hence, r = 1.05901/12 - 1 = 0.4792%. HEnce, Rate = 0.4792%
  • Nper = number of months in 20 years = 12 x 20 = 240
  • PV = - Current loan amount = Cost of house x (1 - down payment) = -400,000 x (1 - 20%) = -320,000
  • FV = future value = 0

Hence, the monthly payment amount = PMT (Rate, Nper, PV, FV) = PMT (0.4792%, 240, -320000, 0) = $ 2,246.79

Part (b)

Principal balance at the end of 5 year terms can be calculated using the PV function of excel. Inputs are:

  • Rate = interest rate per month = 0.4792%
  • Nper = number of months in 20 - 5 = 15 years = 12 x 15 = 180
  • PMT = 2246.79
  • FV = future value = 0

Hence, the Principal balance at the end of 5 year terms = - PV (Rate, Nper, PMT, FV) = - PV (0.4792%, 180, 2246.79, 0) = $ 270,552.14

Part (c)

If, the effective monthly rate is r, then

(1 + r)12 = (1 + APR / 2)2 = (1 + 4.92% / 2)2 = 1.0498

Hence, r = 1.04981/12 - 1 = 0.4059%

The monthly payment amount can be calculated using PMT function of excel. Inputs are:

  • Rate = 0.4059%
  • Nper = number of months in 20 - 5 = 15 years = 12 x 15 = 180
  • PV = - Current loan amount = - 270,552.14
  • FV = future value = 0

Hence, the monthly payment amount = PMT (Rate, Nper, PV, FV) = PMT (0.4059%, 180, -270552.14, 0) = $ 2,121.28

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