Answered: a. Compute the payments at the…

PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)

6th Edition

ISBN:9781337117005

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter7: Using Consumer Loans

Section: Chapter Questions

Problem 4FPE

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EFFECTIVE VERSUS NOMINAL INTEREST RATES Bank A pays 4% interest compounded annually on deposits, while Bank B pays 35% compounded daily. a. Based on the EAR (or EFF%), which hank should you use? b. Could your choice of banks be influenced by the fact that you might want to withdraw your funds during the year as opposed to at the end of the year? Assume that your funds must be left on deposit during an entire compounding period in order to receive any interest.
Amount = $96,500Initial interest rate = 4 percentTerm = 30 yearsPoints = 6 percent Payments to be reset at the beginning of each year. Assuming inflation is expected to increase at the rate of 6 percent per year for the next five years: Required: a. Compute the payments at the beginning of each year (BOY).b. What is the loan balance at the end of the fifth year?c. What is the yield to the lender on such a mortgage?
Problem 7-16 This extended problem covers many of the features of a mortgage. You purchase a town house for $350,000. Since you are able to make a down payment of 20 percent ($70,000), you are able to obtain a $280,000 mortgage loan for 15 years at a 4 percent annual rate of interest. Use Appendix D to answer the questions. Round your answers to the nearest dollar. What are the annual payments that cover the interest and principal repayment?$ How much of the first payment goes to cover the interest?$ How much of the loan is paid off during the first year?$ What is the interest payment during the second year?$ What is the remaining balance after the second year?$ Why did the interest payment change during the second year? The annual -Select-increasedecreaseItem 6 in the amount owed -Select-increasesdecreasesItem 7 each subsequent interest payment.

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a. Compute the payments at the beginning of each year (BOY). b. What is the loan balance at the end of the fifth year? c. What is the yield to the lender on such a mortgage?