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CHAPTER 9
ANSWERS TO ENDOFCHAPTER QUESTIONS
1.
If you had a 7 percent, $100,000 30year fixedrate mortgage, how long would it take
before you had repaid half the loan balance due?
If you paid an extra $100 per month to
reduce the principal due on the mortgage, how long would it take to repay half the
principal due?
In the case where you paid an extra $100 per month, how long would it
take to repay the entire loan?
(Hint:
It probably would help to use a computer
spreadsheet program to make these calculations; set it up in the same way that Exhibit
9.1 is set up.)
Per Exhibit 9.1, loan B (bottom), the $50,000 balance is reached, per the table, between
month 9 and 10 in year 21.
If the homeowner had paid an added $100 per month, or $765.30, the balance would drop
to $50,000 in 13 years and 9 months.
An extra $100 or a $765.30 payment would pay off
the loan in n = 247 months, about 20 years and 7 months.
3.
If your mortgage balance was $60,000 and you had a floatingrate mortgage that called
for you to pay interest at an annual rate of 2.75 percent over the oneyear Tbill rate and
the Tbill rate has been averaging 2.05 percent, how much interest would you owe on
your mortgage next month?
With the rate now at 4.8 percent and the balance of $60,000, one would pay
$60,000(0.048/12) or $240.00 in interest.
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 Spring '11
 Burns
 Annual Percentage Rate, Debt, Mortgage loan, fixed rate mortgage

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