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Obtain the principle amount repaid during years 7 and 8 of $425000 mortgage when n= 20...

Obtain the principle amount repaid during years 7 and 8 of $425000 mortgage when n= 20 and k=8.5%, assuming monthly compounding. (Explain how you get the numbers for P1 AND P2)

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Expert Solution

Monthly payment is calculated using PMT function in Excel with these inputs :

rate = 8.5% / 12 (converting the annual interest rate into monthly rate)

nper = 20 * 12 (20 year loan * 12 months per year)

pv = -425,000 (mortgage amount)

PMT is calculated to be $3,688.25

Interest in any month = principal outstanding at beginning of month * 8.5% / 12

Principal portion of monthly payment = monthly payment minus interest portion of payment

principal outstanding at end of month = principal outstanding at beginning of month minus principal portion of monthly payment

In this way we calculate the mortgage schedule

Principle amount repaid during years 7 = $707

Principle amount repaid during years 8 = $712

jeff jeffy answered 1 year ago
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