Question

1-determine how much of the loan will be paid off by the final ballon payment

2-how much loan must be paid off by the monthly payment

3-the monthly payments needed to pay off the portion of the loan that is not paid off by the final balloon payment

(Complex stream of cash flows) Roger Sterling has decided to buy an ad agency and is going to finance the purchase with seller financing that is, a loan from the current owners of the agency. The loan will be for $2,100,000 financed at an APR of 6 percent compounded monthly This loan will be paid off over 5 years with end-of-month payments, along with a $550,000 balloon payment at the end of year 5. That is, the $2.1 million loan will be paid off with monthly payments, and there will also be a final payment of 5550,000 at the end of the final month. How much will the monthly payments be?

Answer 1

1.Single Payment Present Worth Factor (SPPWF)=(P/F,i,N)=1/((1+i)^N)

I=Monthly interest rate =(6/12)%=0.5%=0.005

N=Number of months after which Balloon payment is made=5*12=60

(P/F,0.5%,60)=SPPWF=1/(1.005^60)=0.741372

Present Value of Balloon Payment =$550,000*SPPWF=$550000*0.741372=$407,755

Amount of loan paid of by the balloon payment

$407,755

2. Amount of loan to be paid off by monthly payments=$2100000-$407755=$1,692,245

Amount of loan to be paid off by monthly payments

$1,692,245

3.Capital Recovery Factor=(CRF)=(A/P,i,N)=(i*((1+i)^N))/(((1+i)^N)-1)

I=Monthly interest rate =0.5%=0.005

N=Number of months of payment=60

.Capital Recovery Factor=CRF=(A/P,0.5%,60)=(0.005*(1.005^60))/((1.005^60)-1)=0.0193328

Monthly payments needed=1692245*CRF=1692245*0.0193328=$32,716

Monthly Payment Needed

$32,716