Question

7. Consider the following fixed-rate, level-payment mortgage: maturity = 360 months amount borrowed = $100,000 annual mortgage rate = 10%

(a) Construct an amortization schedule for the first 10 months.

(b) What will the mortgage balance be at the end of the 10th month assuming no prepayments?

Answer 1

(a) Maturity = 360 months, Borrowed = $ 100000, Annual Mortgage Rate = 10 %

Monthly Interest Rate = (10/12) = 0.8333 %

Let the monthly repayments be $ K

100000 = K x (1/0.00833) x [1-{1/(1.00833)^(360)}]

100000 = K x 113.989

K = 100000 / 113.989 = $ 877.276

Amortization Schedule:

(b) Balance at the end of the 10th Month = Closing Mortgage Balance at the end Month 10 = $ 99540.27