Question

In: Finance

Please solve it on excel Q.1 I charge a 6% nominal interest rate on a loan...

Please solve it on excel

Q.1

I charge a 6% nominal interest rate on a loan when inflation is 3%. By how much does the nominal rate need to rise for me to see a real interest rate of 5%?

Q.2

Carlson is buying a motel. The purchase price is $1,000,000. The bank is willing to finance 70% of the purchase price for 30 years in monthly installments at 7.5% per annum. He wishes to sell the property after exactly six years.

a. What is his monthly loan payment?

b. What will his loan balance be at the time of sale?

c. If he plans to sell after 7 years and 2 months, what will be his loan balance?

Solutions

Expert Solution

Q1

Calculation of Nominal interest rate when inflation is 3% and desired real interest rate of 5% = 1.03*1.05 - 1 = 8.15%

To see a real rate of 5% nominal interest rate must rise by (8.15-5) = 3.15%

Q2

Amount of loan = 1000000 * 0.70 = 700000

Monthly loan payment = 700000 / PVAF 0.625%,360months

Monthly loan payment = 700000 / 143.01 = 4894.76

Opening Interest @ 0.625% per month closing
1 700,000 4,375 4,895 699,480
2 699,480 4,372 4,895 698,957
3 698,957 4,368 4,895 698,431
4 698,431 4,365 4,895 697,901
5 697,901 4,362 4,895 697,369
6 697,369 4,359 4,895 696,832
7 696,832 4,355 4,895 696,293
8 696,293 4,352 4,895 695,750
9 695,750 4,348 4,895 695,203
10 695,203 4,345 4,895 694,654
11 694,654 4,342 4,895 694,101
12 694,101 4,338 4,895 693,544
13 693,544 4,335 4,895 692,984
14 692,984 4,331 4,895 692,420
15 692,420 4,328 4,895 691,853
16 691,853 4,324 4,895 691,282
17 691,282 4,321 4,895 690,708
18 690,708 4,317 4,895 690,130
19 690,130 4,313 4,895 689,549
20 689,549 4,310 4,895 688,964
21 688,964 4,306 4,895 688,375
22 688,375 4,302 4,895 687,783
23 687,783 4,299 4,895 687,187
24 687,187 4,295 4,895 686,587
25 686,587 4,291 4,895 685,983
26 685,983 4,287 4,895 685,376
27 685,376 4,284 4,895 684,765
28 684,765 4,280 4,895 684,150
29 684,150 4,276 4,895 683,531
30 683,531 4,272 4,895 682,908
31 682,908 4,268 4,895 682,281
32 682,281 4,264 4,895 681,651
33 681,651 4,260 4,895 681,017
34 681,017 4,256 4,895 680,378
35 680,378 4,252 4,895 679,736
36 679,736 4,248 4,895 679,089
37 679,089 4,244 4,895 678,439
38 678,439 4,240 4,895 677,784
39 677,784 4,236 4,895 677,126
40 677,126 4,232 4,895 676,463
41 676,463 4,228 4,895 675,796
42 675,796 4,224 4,895 675,125
43 675,125 4,220 4,895 674,450
44 674,450 4,215 4,895 673,770
45 673,770 4,211 4,895 673,087
46 673,087 4,207 4,895 672,399
47 672,399 4,202 4,895 671,707
48 671,707 4,198 4,895 671,010
49 671,010 4,194 4,895 670,309
50 670,309 4,189 4,895 669,604
51 669,604 4,185 4,895 668,894
52 668,894 4,181 4,895 668,180
53 668,180 4,176 4,895 667,461
54 667,461 4,172 4,895 666,738
55 666,738 4,167 4,895 666,010
56 666,010 4,163 4,895 665,278
57 665,278 4,158 4,895 664,541
58 664,541 4,153 4,895 663,800
59 663,800 4,149 4,895 663,054
60 663,054 4,144 4,895 662,303
61 662,303 4,139 4,895 661,548
62 661,548 4,135 4,895 660,788
63 660,788 4,130 4,895 660,023
64 660,023 4,125 4,895 659,253
65 659,253 4,120 4,895 658,479
66 658,479 4,115 4,895 657,700
67 657,700 4,111 4,895 656,916
68 656,916 4,106 4,895 656,127
69 656,127 4,101 4,895 655,333
70 655,333 4,096 4,895 654,534
71 654,534 4,091 4,895 653,730
72 653,730 4,086 4,895 652,921

Loan balance after 6 years (72 month) = 652921

Opening Interest @ 0.625% per month closing
1 700,000 4,375 4,895 699,480
2 699,480 4,372 4,895 698,957
3 698,957 4,368 4,895 698,431
4 698,431 4,365 4,895 697,901
5 697,901 4,362 4,895 697,369
6 697,369 4,359 4,895 696,832
7 696,832 4,355 4,895 696,293
8 696,293 4,352 4,895 695,750
9 695,750 4,348 4,895 695,203
10 695,203 4,345 4,895 694,654
11 694,654 4,342 4,895 694,101
12 694,101 4,338 4,895 693,544
13 693,544 4,335 4,895 692,984
14 692,984 4,331 4,895 692,420
15 692,420 4,328 4,895 691,853
16 691,853 4,324 4,895 691,282
17 691,282 4,321 4,895 690,708
18 690,708 4,317 4,895 690,130
19 690,130 4,313 4,895 689,549
20 689,549 4,310 4,895 688,964
21 688,964 4,306 4,895 688,375
22 688,375 4,302 4,895 687,783
23 687,783 4,299 4,895 687,187
24 687,187 4,295 4,895 686,587
25 686,587 4,291 4,895 685,983
26 685,983 4,287 4,895 685,376
27 685,376 4,284 4,895 684,765
28 684,765 4,280 4,895 684,150
29 684,150 4,276 4,895 683,531
30 683,531 4,272 4,895 682,908
31 682,908 4,268 4,895 682,281
32 682,281 4,264 4,895 681,651
33 681,651 4,260 4,895 681,017
34 681,017 4,256 4,895 680,378
35 680,378 4,252 4,895 679,736
36 679,736 4,248 4,895 679,089
37 679,089 4,244 4,895 678,439
38 678,439 4,240 4,895 677,784
39 677,784 4,236 4,895 677,126
40 677,126 4,232 4,895 676,463
41 676,463 4,228 4,895 675,796
42 675,796 4,224 4,895 675,125
43 675,125 4,220 4,895 674,450
44 674,450 4,215 4,895 673,770
45 673,770 4,211 4,895 673,087
46 673,087 4,207 4,895 672,399
47 672,399 4,202 4,895 671,707
48 671,707 4,198 4,895 671,010
49 671,010 4,194 4,895 670,309
50 670,309 4,189 4,895 669,604
51 669,604 4,185 4,895 668,894
52 668,894 4,181 4,895 668,180
53 668,180 4,176 4,895 667,461
54 667,461 4,172 4,895 666,738
55 666,738 4,167 4,895 666,010
56 666,010 4,163 4,895 665,278
57 665,278 4,158 4,895 664,541
58 664,541 4,153 4,895 663,800
59 663,800 4,149 4,895 663,054
60 663,054 4,144 4,895 662,303
61 662,303 4,139 4,895 661,548
62 661,548 4,135 4,895 660,788
63 660,788 4,130 4,895 660,023
64 660,023 4,125 4,895 659,253
65 659,253 4,120 4,895 658,479
66 658,479 4,115 4,895 657,700
67 657,700 4,111 4,895 656,916
68 656,916 4,106 4,895 656,127
69 656,127 4,101 4,895 655,333
70 655,333 4,096 4,895 654,534
71 654,534 4,091 4,895 653,730
72 653,730 4,086 4,895 652,921
73 652,921 4,081 4,895 652,107
74 652,107 4,076 4,895 651,288
75 651,288 4,071 4,895 650,463
76 650,463 4,065 4,895 649,634
77 649,634 4,060 4,895 648,800
78 648,800 4,055 4,895 647,960
79 647,960 4,050 4,895 647,115
80 647,115 4,044 4,895 646,264
81 646,264 4,039 4,895 645,409
82 645,409 4,034 4,895 644,548
83 644,548 4,028 4,895 643,682
84 643,682 4,023 4,895 642,810
85 642,810 4,018 4,895 641,933
86 641,933 4,012 4,895 641,050

Loan balance aftere 7 Years and 2 months (86months) = 641,050


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