QUESTION ONE

A $80,000 loan is made at a 16 percent (nominal) rate of interest for 25 years. What are the

constant monthly mortgage payments on this loan, assuming it is to be fully amortized at the end

of 30 years? Determine the loan balance at the end of 5 years and construct a six month

amortization table.

QUESTION TWO

Suraya wants to buy a property for $600,000 and wants 80 percent loan, lender (I&M Bank)

indicates that a fully amortizing loan can be obtained for 15 years at 13 percent interest per annum,

however, a loan origination fee of $7,500 will also be necessary for Suraya to obtain the loan.

i.

How much will Suraya be expected to pay annually?

ii.

If Suraya pays off the loan after five years, what is the effective interest rate?

iii.

Assume the lender also imposes a prepayment penalty of 5 percent of the outstanding

loan balance if the loan is repaid within eight years of closing. If Suraya repays the loan

after five years with the prepayment penalty, what is the effective interest rate?

QUESTION THREE

A partially amortizing loan for $90,000 for 10 years is made at 6 percent interest. The lender and

borrower agree that payments will be monthly and that a balance of $20,000 will remain and be

repaid at the end of year 10. Assuming 2 points are charged by the lender, what will be the yield

if the loan is repaid at the end of year 10? What must the loan balance be if it is repaid after year

4?

QUESTION FOUR

An 10 year mortgage loan amounting to $90,000 was issued to a developer, the banker and the

developer have agreed that the amount due at maturity will be $120,000, determine the monthly

repayment amount and the balance at the end of 5 years given that the interest rate is 15%.

QUESTION FIVE

A $80,000 mortgage loan is made at a 12 percent (nominal) rate of interest for 30 years. What is

the constant monthly mortgage payment on this loan, assuming it is to be fully amortized at the

end of 30 years? Determine the loan balance at the end of 10 years and construct a one year

amortization schedule.