Question

1 pts Question 2 Consider a standard mortgage (360 months) with monthly payments and a nominal rate of 6.70%. What portion of the payments during the first 29 months goes toward principal? O 15.41% 14.00% O 15.46% 15.88% O 14.58% 1 pts Question 3

Answer 1

Answer: Option-(e): 14.58% Workings: Monthly Interest rate, RATE # of total monthly payments, NPER Loan amount, PV Principal repaid from, Start_Period Principal repaid till, End_Period Equal annual installment type, TYPE Principal repaid during first 29 months Total amounts paid during first 29 months 0.5583% [Monthly interest rate = 6.70% / 12 = 0.5583%] 360 [30 years x 12 --> As there will be 12 monthly payments per year] $15,000 (Assumed for calculation purpose] 1 [As we calculate principal repaid from first installment] 29 [As we calculate principal repaid till 29th installment] 0 = 0 if paid at the end of each month; 1 if paid at the beginning of each month $409.31 [Ref: NOTE] $2,806.96 [Ref: NOTE] So, Percentage of principal paid in first 29 months 14.58% ($409.31 / $2806.96 --> Principal repaid / Total amounts paid]

NOTE: B Principal repaid during first 29 months is calculated using EXCEL FUNCTION CUMPRINC(rate, nper,pv,start period, end period,type) where rate=0.5583%; nper=360; pv=15000; start_period=1; end_period=29; type=0. Here, type = 0 as installments paid at the end of each month only. Total amounts paid during first 29 months is calculated using EXCEL FUNCTION PMT(rate,nper,pv,fv,type) x 29 where rate=0.5583%; nper=360; pv=-15000; fv=0 type=0; Here, pv is negative as it denotes cash inflow; type=0 as installments are paid at the end of each month only. A с D E 1 Monthly Interest rate, RATE =6.7%/12 [Monthly interest rate = 6.70% / 12 = 0.5583%] 2 # of total monthly payments, NPER =30*12 [30 years x 12 --> As there will be 12 monthly payments per year] 3 Loan amount, PV $15,000 (Assumed for calculation purpose] 4. Principal repaid from, Start_Period 1 [As we calculate principal repaid from first installment] 5 Principal repaid till, End_Period 29 [As we calculate principal repaid till 29th installment] 6 Equal annual installment type, TYPE 0 = 0 if paid at the end of each month; 1 if paid at the beginning of each month 7 Principal repaid during first 29 months --CUMPRINC(B1,B2,B3,B4,B5,B6) [Ref: NOTE] 8 9 Total amounts paid during first 29 months =PMT(B1,B2,-B3,0,0)*B5 [Ref: NOTE] 10 11 So, Percentage of principal paid in first 29 months =B7/B9 ($409.31 / $2806.96 --> Principal repaid / Total amounts paid] 12