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# BNAD 301 - Part II - 0.5 o N=360 i=0.5 cash flow = 1,000 o...

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BNAD 301 16/10/2007 19:10:00 Majority of value of retirement savings happens at the end Loan perspective 30 year fixed rate mortgages Principle is the present value of the discounted payment o Principle = payment (monthly) * PVAIF (360 monthly payments &  monthly interest rate The “action” that happens at the end is that you pay off the majority of your  loan at the end of the loan Suppose you have a 6% annual interest rate mortgage for 30 years After 15 years, how much will you have paid off? Notice that the higher the interest rate, the greater the proportion of the loan  is paid off at the end of the loan How can we tell how much of the loan we have paid off for any point in time? Suppose we have 360 payments of 1,000 months at a monthly interest rate of

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Unformatted text preview: 0.5% o N=360, i=0.5%, cash flow = 1,000 o Present value of the cash flows = 1,000 * PVAIF = 1,000 * (1-1/(1.005) 360 /0.005) = 1000 * 166.7916144 = \$166,792 (amount borrowed today) • Suppose we make 180 payments of \$1,000 a month o We would be at the halfway point of the loan • We can compute the PU of the first 180 payments • PU of 1 st 180 payments = 1,999 * PVAIF o = 1,000 * (1-1/(1.005) 180 /0.005) o = 1,000 * 118.5035747 o = 118,504 • The difference between 166,792 & 118,504 = 48,288 • Let’s compute 2 ratios: 48,288/166,792 & 118,504/166,792 o 28.95% or 29% AND 71.05% or 71% o Paid off 29%. • % of loan paid off = Principle – PV of payments/Principle o 16/10/2007 19:10:00 ← 16/10/2007 19:10:00 16/10/2007 19:10:00 ←...
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BNAD 301 - Part II - 0.5 o N=360 i=0.5 cash flow = 1,000 o...

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