Question

In: Finance

Phil and Jill bought a fishing lodge for $750,000. They paid $75,000 down and agreed to...

Phil and Jill bought a fishing lodge for $750,000. They paid $75,000 down and agreed to make payments at the end of every month for fifteen years. Interest is 6% compounded quarterly.

a) What size payments are the Phil and Jill making every month.

b) How much will they owe after ten years?
c) How much will they have paid in total after 15 years?
d) How much interest will they pay in total?

Expert Solution

Loan = principal-down = 750000-75000=675000

EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100

? = ((1+6/(4*100))^4-1)*100

Effective Annual Rate% = 6.1364

EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100

6.1364 = ((1+Stated rate%/(12*100))^12-1)*100

Stated rate% = 5.9703

a

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

675000= Cash Flow*((1-(1+ 5.9703/1200)^(-15*12))/(5.9703/1200))

Cash Flow = 5685.21

b

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

PV= 5685.21*((1-(1+ 5.9703/1200)^(-10*12))/(5.9703/1200))

PV = 512775.1

c

total paid = CF*years*months per year = 5685.21*15*12=1023337.8

d

Interest =total paid-loan = 1023337.8-675000=348337.8

jeff jeffy answered 6 months ago

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