Question

On 1/1/20x1 you have borrowed $450,000 from a mortgage bank to buy a new house, and wish to repay the mortgage loan and the interest in 5 equal annual payments, the first one being payable on 12/31/20x1. The mortgage loan bears interest at 7%.

        a) Calculate the annual mortgage payment required. Round off to the nearest cent (e.g.,

   $112,753.32).

b) Construct the mortgage payment schedule to see if the loan and interest will be paid

   in full by the end of year 20x5.

     

	Amount Owed at the Beginning of Year	Interest owed	Payment	Decrease in amount owed	Amount owed at Year-End
20x1	450,000.00
20x2
20x3
20x4
20x5					0

Answer 1

Since PV Table values have not been given, i have calculated the values myself

PV Factor used is PV annuity Factor @7% for 5 periods i.e. 4.1002

a. Annual Mortgage Payment = $450000 / 4.1002 = $109750.74 or $109750.81

b.

	Amount owed at beginning of year	Interest Owed	Payment	Decrease in Amount owed	Amount owed at end of year
20x1	$   450,000.00	$     31,500.00	$   109,750.81	$     78,250.81	$   371,749.19
20x2	$   371,749.19	$     26,022.44	$   109,750.81	$     83,728.37	$   288,020.82
20x3	$   288,020.82	$     20,161.46	$   109,750.81	$     89,589.35	$   198,431.47
20x4	$   198,431.47	$     13,890.20	$   109,750.81	$     95,860.61	$   102,570.86
20x5	$   102,570.86	$        7,179.95	$   109,750.81	$   102,570.86	$               0.00