Question

In: Finance

The MacDonalds are at the bank in order to negotiate a loan to buy a farm...

The MacDonalds are at the bank in order to negotiate a loan to buy a farm where they can raise cows, horses, chickens sheep and plant spaghetti trees. They have managed to save $400,000 over the last 10 years that they can use as a down payment. The MacDonalds would like to finance their purchase over 25 years making monthly payments. According to their financial planning schedule, they will clear $7,500 a month and would like their mortgage payments to be at most 30 percent of their monthly earnings. The bank is offering a 25 year amortized mortgage loan at 5.25 percent with a 5 year term.

  1. Calculate the maximum price the MacDonalds can pay for their farm.
  2. Prepare an amortization table for the first 5 months of the MacDonalds’ mortgage.
  3. At the end of the 5 year term of their mortgage, how much will the MacDonalds owe on their loan?

Solutions

Expert Solution

1.

=7500*30%/(5.25%/12)*(1-1/(1+5.25%/12)^(12*25))+400000=$775,470.77

2.

Payment Loan beginning balance Payment Interest payment Principal payment Loan ending balance
1 375470.77 $2,250.00 $1,642.68 $607.32 $374,863.45
2 $374,863.45 $2,250.00 $1,640.03 $609.97 $374,253.48
3 $374,253.48 $2,250.00 $1,637.36 $612.64 $373,640.84
4 $373,640.84 $2,250.00 $1,634.68 $615.32 $373,025.52
5 $373,025.52 $2,250.00 $1,631.99 $618.01 $372,407.51
6 $372,407.51 $2,250.00 $1,629.28 $620.72 $371,786.79
7 $371,786.79 $2,250.00 $1,626.57 $623.43 $371,163.36
8 $371,163.36 $2,250.00 $1,623.84 $626.16 $370,537.20
9 $370,537.20 $2,250.00 $1,621.10 $628.90 $369,908.30
10 $369,908.30 $2,250.00 $1,618.35 $631.65 $369,276.65
11 $369,276.65 $2,250.00 $1,615.59 $634.41 $368,642.23
12 $368,642.23 $2,250.00 $1,612.81 $637.19 $368,005.04
13 $368,005.04 $2,250.00 $1,610.02 $639.98 $367,365.06
14 $367,365.06 $2,250.00 $1,607.22 $642.78 $366,722.28
15 $366,722.28 $2,250.00 $1,604.41 $645.59 $366,076.69
16 $366,076.69 $2,250.00 $1,601.59 $648.41 $365,428.28
17 $365,428.28 $2,250.00 $1,598.75 $651.25 $364,777.03
18 $364,777.03 $2,250.00 $1,595.90 $654.10 $364,122.93
19 $364,122.93 $2,250.00 $1,593.04 $656.96 $363,465.97
20 $363,465.97 $2,250.00 $1,590.16 $659.84 $362,806.13
21 $362,806.13 $2,250.00 $1,587.28 $662.72 $362,143.41
22 $362,143.41 $2,250.00 $1,584.38 $665.62 $361,477.78
23 $361,477.78 $2,250.00 $1,581.47 $668.53 $360,809.25
24 $360,809.25 $2,250.00 $1,578.54 $671.46 $360,137.79
25 $360,137.79 $2,250.00 $1,575.60 $674.40 $359,463.39
26 $359,463.39 $2,250.00 $1,572.65 $677.35 $358,786.04
27 $358,786.04 $2,250.00 $1,569.69 $680.31 $358,105.73
28 $358,105.73 $2,250.00 $1,566.71 $683.29 $357,422.45
29 $357,422.45 $2,250.00 $1,563.72 $686.28 $356,736.17
30 $356,736.17 $2,250.00 $1,560.72 $689.28 $356,046.89
31 $356,046.89 $2,250.00 $1,557.71 $692.29 $355,354.60
32 $355,354.60 $2,250.00 $1,554.68 $695.32 $354,659.27
33 $354,659.27 $2,250.00 $1,551.63 $698.37 $353,960.91
34 $353,960.91 $2,250.00 $1,548.58 $701.42 $353,259.48
35 $353,259.48 $2,250.00 $1,545.51 $704.49 $352,555.00
36 $352,555.00 $2,250.00 $1,542.43 $707.57 $351,847.42
37 $351,847.42 $2,250.00 $1,539.33 $710.67 $351,136.76
38 $351,136.76 $2,250.00 $1,536.22 $713.78 $350,422.98
39 $350,422.98 $2,250.00 $1,533.10 $716.90 $349,706.08
40 $349,706.08 $2,250.00 $1,529.96 $720.04 $348,986.04
41 $348,986.04 $2,250.00 $1,526.81 $723.19 $348,262.86
42 $348,262.86 $2,250.00 $1,523.65 $726.35 $347,536.51
43 $347,536.51 $2,250.00 $1,520.47 $729.53 $346,806.98
44 $346,806.98 $2,250.00 $1,517.28 $732.72 $346,074.26
45 $346,074.26 $2,250.00 $1,514.07 $735.93 $345,338.34
46 $345,338.34 $2,250.00 $1,510.86 $739.14 $344,599.19
47 $344,599.19 $2,250.00 $1,507.62 $742.38 $343,856.81
48 $343,856.81 $2,250.00 $1,504.37 $745.63 $343,111.19
49 $343,111.19 $2,250.00 $1,501.11 $748.89 $342,362.30
50 $342,362.30 $2,250.00 $1,497.84 $752.16 $341,610.13
51 $341,610.13 $2,250.00 $1,494.54 $755.46 $340,854.68
52 $340,854.68 $2,250.00 $1,491.24 $758.76 $340,095.92
53 $340,095.92 $2,250.00 $1,487.92 $762.08 $339,333.83
54 $339,333.83 $2,250.00 $1,484.59 $765.41 $338,568.42
55 $338,568.42 $2,250.00 $1,481.24 $768.76 $337,799.66
56 $337,799.66 $2,250.00 $1,477.87 $772.13 $337,027.53
57 $337,027.53 $2,250.00 $1,474.50 $775.50 $336,252.03
58 $336,252.03 $2,250.00 $1,471.10 $778.90 $335,473.13
59 $335,473.13 $2,250.00 $1,467.69 $782.31 $334,690.82
60 $334,690.82 $2,250.00 $1,464.27 $785.73 $333,905.10

3.

333905.10


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