Question

In: Finance

You are considering a hotel purchase. The current purchase price is $ 3,000,000. The bank is...

You are considering a hotel purchase. The current purchase price is $ 3,000,000. The bank is willing to finance 70% of the purchase price for 20 years in quarterly installments at 8% per annum mortgage nominal rate. What is the balloon payment you will have to pay, if you want to resell the hotel after 10 years? Consider a fully amortizing fixed rate mortgage.

a)      $ 0

b)      $ 1,445,395

c)       $ 1,669,270

d)      $ 1,981,333

Solutions

Expert Solution

Hi,

This will solved in 2 steps. In first steps we will compute the payment of 20 year loan. In second step, we will compute the future value at the end of 10th year assuming loan is being repaid as per payment computed in step 1. Will this the answer is b) $1,445,395. Please refer to below snapshot:


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