Question

1. Callan Muffley borrows $900,000 to buy a house. The stated annual interest rate on the loan is 3.6% with monthly payments over 40 years (3.6% annual, compounded monthly). a) Set up the amortization schedule for the first month of the loan. (4 Points) b) Set up the amortization schedule for the loan with exactly six months to go.(4 Points) Interest Reduction inEnding Principal Principal Balance Month Beginning MonthlyI PrincipalPayment Balance e) What are Callan's total payments to principal during the entire eleventh year that the loan is outstanding? (12 points) d) What are the total navments to interest dfring the eleuenth year that the l outstanding?( e) At the end of the eleventh year of the loan Callan pays $400,000 toward the principal of the loan. How long will it take for her to pay the loan off after the $400,000 payment? How much interest does she save? What is the EAR (Effective Annual Rate) for the loan? Carry it out to five decimal places after the decimal point (for example 0.00000),

1. Callan Muffley borrows $900,000 to buy a house. The stated annual interest rate on the loan is 3.6% with monthly payments over 40 years (3.6% annual, compounded monthly). a) Set up the amortization schedule for the first month of the loan. (4 Points) b) Set up the amortization schedule for the loan with exactly six months to go.(4 Points) Interest Reduction inEnding Principal Principal Balance Month Beginning MonthlyI PrincipalPayment Balance e) What are Callan's total payments to principal during the entire eleventh year that the loan is outstanding? (12 points) d) What are the total navments to interest dfring the eleuenth year that the l outstanding?( e) At the end of the eleventh year of the loan Callan pays $400,000 toward the principal of the loan. How long will it take for her to pay the loan off after the $400,000 payment? How much interest does she save? What is the EAR (Effective Annual Rate) for the loan? Carry it out to five decimal places after the decimal point (for example 0.00000),

Answer 1

	Pv	Loan   amount	$900,000
	Rate	Monthly interest rate=(3.6/12)%=	0.003
	Nper	Number of months of payment	480	(40*12)
	PMT	Monthly Payment	$3,540.70	(Using PMT function of excelwith Rate=0.003, Nper=480, Pv=-900000)
		AMORTIZATION SCHEDULE
				A	B	C=A*0.003	D=B-C	E=A-D
			Month	Beginning Principal	Monthly Payment	Interest	Reduction in principal	Ending Principal Balance
			1	$900,000	$3,540.70	$2,700.00	$840.70	$899,159.30
			2	$899,159.30	$3,540.70	$2,697.48	$843.22	$898,316.08
			3	$898,316.08	$3,540.70	$2,694.95	$845.75	$897,470.32
			4	$897,470.32	$3,540.70	$2,692.41	$848.29	$896,622.03
			5	$896,622.03	$3,540.70	$2,689.87	$850.83	$895,771.20
			6	$895,771.20	$3,540.70	$2,687.31	$853.39	$894,917.81	PAYMENT IN 11TH YEAR Month Beginning Principal Monthly Payment Interest Reduction in principal Ending Principal Balance 121 $778,782.98 $3,540.70 $2,336.35 $1,204.35 $777,578.63 122 $777,578.63 $3,540.70 $2,332.74 $1,207.96 $776,370.66 123 $776,370.66 $3,540.70 $2,329.11 $1,211.59 $775,159.07 124 $775,159.07 $3,540.70 $2,325.48 $1,215.22 $773,943.85 125 $773,943.85 $3,540.70 $2,321.83 $1,218.87 $772,724.98 126 $772,724.98 $3,540.70 $2,318.17 $1,222.53 $771,502.45 127 $771,502.45 $3,540.70 $2,314.51 $1,226.19 $770,276.26 128 $770,276.26 $3,540.70 $2,310.83 $1,229.87 $769,046.39 129 $769,046.39 $3,540.70 $2,307.14 $1,233.56 $767,812.83 130 $767,812.83 $3,540.70 $2,303.44 $1,237.26 $766,575.57 131 $766,575.57 $3,540.70 $2,299.73 $1,240.97 $765,334.59 132 $765,334.59 $3,540.70 $2,296.00 $1,244.70 $764,089.89 TOTAL $27,795.32 $14,693.08
	Payment During eleventh year (Month121 to 132)
	Total Payment To Principal	$14,693.08
	Total Payment To Interest	$27,795.32