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N 1:
You have just purchased a $500,000 house with a 25% down payment. You will finance the balance
using a mortgage that will be repaid in equal monthly payments over a term of 30 years. The first
payment starts one month from today. The quoted fixed mortgage rate is 6% compounded monthly.
What is the effective semi-annual interest rate for this mortgage?
ANSWER 1:
EMR = 6%/12 = 0.5%, such that ESAR = (1 + 0.005)^(6) - 1 = 3.0378%.
QUESTION 2:
You have just purchased a $500,000 house with a 25% down payment. You will finance the balance
using a mortgage that will be repaid in equal monthly payments over a term of 25 years. The first
payment starts one month from today. The effective semi-annual interest rate for this mortgage is 3%.
What is the monthly mortgage payment?
ANSWER 2:
EMR = (1 + 0.03)^(1/6) - 1 = 0.4939%.
Then:
25% * $500,000 = $375,000 = (C/0.004939)*(1 - 1/(1.004939^300))
So, C = $2,399.
QUESTION 3:
You have just purchased a house financed using a mortgage that will be repaid in equal payments of
$2,400 per month over a term of 30 years, starting in one month from today. The effective annual interest
rate for this mortgage is 6%. If you make the monthly payments as scheduled, what should be the

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- Summer '11
- Mahmood
- Finance, Payment, Mortgage loan, fixed rate mortgage
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