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Problem Set 5

# Problem Set 5 - Xi 1 ECON 252 Problem Set#5 Sunny Xi TA...

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Xi ECON 252 1 Problem Set #5 Sunny Xi TA: Christian 1. What is the monthly payment on a forty-year \$100,000 home mortgage with a fixed rate of 5%? = / × - ( + ) mortpaymonthly mortbal1r 12 1 1 1 r12 12t With balance = \$100,000, = . r 05 and = t 40 , the equation become. = . / × - ( +. ) ( ) mortpaymonthly 1000001 05 12 1 1 1 0512 12 40 Monthly payment = . \$482 20 2. What fraction of the first monthly payment (one month after closing on the home) is amortization of principal? What fraction is interest? First, the interest payment for the first month is simply the monthly interest of the full \$100,000. ×. = . \$100000 0512 \$416 67 Hence, . . = . % \$416 67\$482 2 86 4 of the first monthly payment is set for interest. The amortization of capital is simply the remaining portion of the payment, . - \$482 20 . = . \$416 67 \$65 53 . In the first month, only 15.6% of the payment is directed towards the amortization of the capital. 3. What is the mortgage balance after one month? ( , + . )- . = , . \$100 000 \$416 67 \$482 20 \$99 934 47 or , - . = , . \$100 000 \$65 53 \$99 934 47 4. What fraction of the last monthly payment (exactly forty years after closing) is amortization of principal? What fraction is interest?

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