Question

Problem 6. A 20-year mortgage with monthly payments has a principal outstanding of $125,000. Interest is at 8% compounded semi-annually. What are the monthly payments? ANSWER is $1,035.24 but PLEASE SHOW STEPS. TIA

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Problem 7: Ambrin corp. expects to receive $2,000 per year for 10 years and $3,500 per year for the next 10 years. WHat is the present value of this 20 year cash flow? use an 11% discount. ANSWER is $19,038 ... Please solve and show all steps to the answer Thanks in advance:)

Answer 1

1)

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

Effective Annual Rate = ((1+8/2*100)^2-1)*100

Effective Annual Rate% = 8.16

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

C = Cash flow per period

i = interest rate

n = number of payments

125000= Cash Flow*((1-(1+ 8.16/1200)^(-20*12))/(8.16/1200))

Cash Flow = 1058.03

2)

PV of 3500 payment at end of 10 year

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

C = Cash flow per period

i = interest rate

n = number of payments

PV= 3500*((1-(1+ 11/100)^-10)/(11/100))

PV = 20612.31

PV of 3500 annuity today

Future value = present value*(1+ rate)^time

20612.31 = Present value*(1+0.11)^10

Present value = 7259.336

PV of 2000 annuity

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

C = Cash flow per period

i = interest rate

n = number of payments

PV= 2000*((1-(1+ 11/100)^-10)/(11/100))

PV = 11778.46

total PV today = PV of 2000 annuity +PV of 3500 annuity = 11778.46+7259.336=19037.796

PVordinary Annuity