Business
Engineering
Math
Science
Social Science
Fundamentals of Financial Manageme...
Solutions
Fundamentals of Financial Manageme...
AMORTIZATION SCHEDULE WITH A BALLOON PAYMENT You want to buy a house that costs $140,000. You have $14,000 for a down payment, but your credit is such that mortgage companies will not lend you the required $126,000. However, the realtor persuades the seller to take a $126,000 mortgage (called a seller take-back mortgage) at a rate of 5%, provided the loan is paid off in full in 3 years. You expect to inherit $140,000 in 3 years; but right now all you have is $14,000, and you can afford to make payments of no more than $22,000 per year given your salary. (The loan would call for monthly payments, but assume end-of-year annual payments to simplify things.)
- a. If the loan was amortized over 3 years, how large would each annual payment be? Could you afford those payments?
- b. If the loan was amortized over 30 years, what would each payment be? Could you afford those payments?
- c. To satisfy the seller, the 30-year mortgage loan would be written as a balloon note, which means that at the end of the third year, you would have to make the regular payment plus the remaining balance on the loan. What would the loan balance be at the end of Year 3, and what would the balloon payment be?
a.
To calculate: Amount of loan payment, if it was amortized for 3 years.
Balloon Payment:
It is the total amount which is paid at the end of the term of the loan. If there is a condition of paying the entire principal amount in lump sum at the end of the term then there is an involvement of balloon payment. Amount paid as balloon payment is generally higher in comparison of the amount paid in monthly installments.
Annual payment on loan of $126,000 for 3 years at 5 % interest is calculated by using “PMT” formula on excel,
b.
To calculate: Amount of loan payment, if it was amortized for 30 years.
Balloon Payment:
It is the total amount which is paid at the end of the term of the loan. If there is a condition of paying the entire principal amount in lump sum at the end of the term then there is an involvement of balloon payment. Amount paid as balloon payment is generally higher in comparison of the amount paid in monthly installments.
c.
To calculate: Balloon payment outstanding value at the end of three year after making payment of $22,000 for the next three years.
Balloon Payment:
It is the total amount which is paid at the end of the term of the loan. If there is a condition of paying the entire principal amount in lump sum at the end of the term then there is an involvement of balloon payment. Amount paid as balloon payment is generally higher in comparison of the amount paid in monthly installments.
Chapter 5 Solutions
Additional Business Solutions
Find more solutions based on key concepts
Show solutions addDifferentiate between ROE and ROIC.
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
NOMINAL INTEREST RATE AND EXTENDING CREDIT As a jewelry store manager, you want to offer credit, with interest ...
Fundamentals of Financial Management (MindTap Course List)
You were planning to spend Saturday working at your part-time job, but a friend asks you to go skiing. What is ...
Brief Principles of Macroeconomics (MindTap Course List)
What are the limitations of the centralized database approach to business information systems?
Accounting Information Systems
Effects of Sales Discounts Citron Mechanical Systems makes all sales on credit, with terms 1/15, n/30. During 2...
Cornerstones of Financial Accounting
How does a firms top management influence its degree of centralization?
Foundations of Business (MindTap Course List)
Classifying accounts Balances for each of the following accounts appear in an adjusted trial balance. Identify ...
Corporate Financial Accounting
An electronics store is offering a special price on a complete set of components (receiver, compact disc player...
Probability and Statistics for Engineering and the Sciences
According, to the efficient markets hypothesis, a. changes in stock prices are impossible to predict from publi...
Principles of Macroeconomics (MindTap Course List)
Pew Research Center is a nonpartisan polling organization that provides information about issues, attitudes, an...
STATISTICS F/BUSINESS+ECONOMICS-TEXT
(Collusion and Cartels) Use revenue and cost curves to illustrate and explain the sense in which a cartel behav...
ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
Persuasive Request: Inviting an Alumna to Speak. As public relations director for the Business and Accounting A...
Essentials of Business Communication (MindTap Course List)
In what ways is your standard of living different from that of your parents or grandparents when they were your...
Principles of Economics (MindTap Course List)
Revision of depreciation A building with a cost of 1,200,000 has an estimated residual value of 250,000, has an...
Financial & Managerial Accounting
List and briefly explain the three principles that describe how the economy as a whole works.
Principles of Microeconomics (MindTap Course List)
Correcting entries The following errors took place in journalizing and posting transactions: A. The receipt of ...
Financial And Managerial Accounting
The following revenue transactions occurred during August: Record these three transactions in the following rev...
Financial Accounting
Social entrepreneurship is a growing phenomenon. Do you believe that for-profit businesses can have a social mi...
Management, Loose-Leaf Version
Summarize how marketing creates value through the four types of utility.
Contemporary Marketing
Name a source document that provides information about each of the following types of business transactions: a....
College Accounting, Chapters 1-27
When two individuals produce efficiently and then make a mutually beneficial trade based on comparative advanta...
Essentials of Economics (MindTap Course List)
Effective May 1, the shareholders of Baltimore Corporation approved a 2-for-1 split of the companys common stoc...
Intermediate Accounting: Reporting And Analysis
On January 1, 2015, Dr. Marcie Cousins established Health-Wise Medical, a medical practice organized as a propr...
Financial Accounting
What document is the source for (A) debiting the accounts in the material ledger and (B) crediting the accounts...
Financial & Managerial Accounting
CLASSIC RESTORATIONS (MANUAL AND STAND-ALONE COMPUTER PROCESSING) Classic Restorations specializes in the sale ...
Accounting Information Systems
Describe the growing importance of mobile research
MKTG 12:STUDENT ED.-TEXT
What is cycle time? Velocity?
Managerial Accounting: The Cornerstone of Business Decision-Making
When is the payroll register updated? a. Annually b. Each payday c. Quarterly d. Monthly e. No set schedulewhen...
College Accounting (Book Only): A Career Approach
Looking at the most recent year available, what is the amount of total assets on Starbucks' balance sheet? What...
Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
Inventory analysis A company reports the following: Cost of goods sold 660,000 Average inventory 60,000 Determi...
Accounting (Text Only)
If the marginal propensity to save increases, what happens tb the consumption function?
Exploring Economics
A manager of a large corporation recommends a 10,000 raise be given to keep a valued subordinate from moving to...
Statistics for Business & Economics, Revised (MindTap Course List)
EXPECTED RETURNS Stocks X and Y have the following probability distributions of expected future returns: Probab...
Fundamentals of Financial Management (MindTap Course List)
Describe the three key characteristics of companies that successfully manage global complexity.
Pkg Acc Infor Systems MS VISIO CD
Place a check mark next to any account(s) requiring adjustment. Explain why those accounts must be adjusted.
College Accounting (Book Only): A Career Approach
The sales, gross profit, and condensed total operating expenses of departments A and B for YH Company for the c...
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
Suppose that business travelers and vacationers have the following demand for airline tickets from New York to ...
Principles of Macroeconomics (MindTap Course List)
Identify two ways to compute average total cost (ATC).
Economics (MindTap Course List)
What does falling total utility imply for marginal utility? Give an arithmetical example to illustrate your ans...
Microeconomics
In order to get caught up, an employee takes work home. Must the employee be paid for this extra time?
PAYROLL ACCT.,2019 ED.(LL)-TEXT
Jason Rogers works full-time for UPS and runs a lawn-mowing service part-time after work during the warm months...
Cornerstones of Cost Management (Cornerstones Series)
What would the supply curve for houses (in a given city) look like for a period of (a) the next 10 hours and (b...
Macroeconomics
Purchasing Ethics Scenario 1 Bryan Janz was just arriving back from lunch when his office phone rang. It was hi...
Purchasing and Supply Chain Management
Bank reconciliation An accounting clerk for West wind Co. prepared the following bank reconciliation: a.From th...
Survey of Accounting (Accounting I)
You are entering the widget business. It costs 500,000, payable in year 1, to develop a prototype. This cost ca...
Practical Management Science
As shown in Exhibit A-7, if the market is in equilibrium, _______________ represents producer surplus. a. ADFB ...
Economics For Today
Comprehensive Income Anson Industries, Inc. reported the following information on its 20Y1 income statement: Sa...
Corporate Financial Accounting
