$12$

Problem $5-47$ Amortizing Loans and Inflation $($LO$3)$

$5\mathrm{.}88$

points

Suppose you take out a $$101,000,20-$year mortgage loan to buy a condo. The interest rate on the loan is $4\%.$ To keep things simple we will assume you make payments on the loan annually at the end of each year.

a$.$ What is your annual payment on the loan?

b$.$ Construct a mortgage amortization.

c$.$ What fraction of your initial loan payment is interest?

d$.$ What fraction of your initial loan payment is amortization?

e$.$ What is the total of the loan amount paid off after $10$ years $($halfway through the life of the loan$)?$

f$.$ If the inflation rate is $1\%,$ what is the real value of the first $($year$-$end$)$ payment?

g$.$ If the inflation rate is $1\%,$ what is the real value of the last $($year$-$end$)$ payment?

h$.$ Now assume the inflation rate is $7\%$ and the real interest rate on the loan is unchanged. What must be the new nominal interest rate?

i$-1.$ Recompute the amortization table.

i$-2.$ What is the real value of the first $($year$-$end$)$ payment in this high$-$inflation scenario?

j$.$ What is the real value of the last payment in this high$-$inflation scenario?

Complete this question by entering your answers in the tabs below.

Req A

Req B

Req $C$ and $D$

Req E to $G$

ReqH

Req I$1$

Req I$2$ and J

Construct a mortgage amortization.

Note: Do not round intermediate calculations. Round your answers to $2$ decimal places. Leave no cells blank $-$ be certain to enter $"0"$ wherever required. Enter all values as positive value.

$\backslash$table$[[$Year$,\backslash$table$[[\backslash$table$[[$Beginning$-$of$-],[$Year$],[$Balance$]]]],\backslash$table$[[$Year$-$End$],[$Interest Due$],[$on Balance$]],\backslash$table$[[$Year$-$End$],[$Payment$]],\backslash$table$[[$Amortization$],[$of Loan$]],\backslash$table$[[$End$-$of$-$Year$],[$Balance$]]],[1],[2],[3],[4],[5],[6],[7],[8],[9],[10],[11],[12],[13],[14],[\backslash$table$[[15],[16]]],[16],[\backslash$table$[[17],[18]]],[\backslash$table$[[18],[19]]],[19],[20,,,,,]]$