1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Aliun [14]
2 years ago
6

A borrower is interested in comparing the monthly payments on two otherwise equivalent 30 year FRMs. Both loans are for $100,000

and have a 7% interest rate. Loan 1 is fully amortizing, where as Loan 2 has negative amortization with a $120,000 balloon payment due at the end of the life of the loan. How much higher is the monthly payment on loan 1 versus loan 2
Business
1 answer:
Gemiola [76]2 years ago
4 0

Answer:

The monthly payment in Loan 1 is higher than in loan 2 by:

(665.30 - 566.94) = $98.36

Explanation:

Solution:

Comparison of Loan 1 and Loan 2 in terms of monthly payments.

For the first loan, we have to calculate equal monthly payments with the following details:

Principal = $ 100,000,

Monthly Interest rate = 7/12 = 0.58% ,

Term = 360 months

Use the PV = C (1 - (1+r)-n ) / r ,

where PV = Principal, r = monthly rate, n = 360 and

find C (EMI) = $665.30

NOTE: (Excel function is used: PMT(rate, year, PV) formula for convenience)

For Loan 2, we have to understand a few things.

The original loan principal is $ 100,000,

but you are allowed to do a balloon payment of $ 120000 at the end of 30 years.

The present value of the Balloon payment can be deducted from the principal to find out the monthly cash payments to be done.

The monthly payments will of course be lower since a lump sum balloon payment is done at the end.

The calculation is similar to the above. In this scenario, the Monthly payment comes out to be $ 566.94

Hence,

The monthly payment in Loan 1 is higher than in loan 2 by:

(665.30 - 566.94) = $98.36

You might be interested in
A static budget is one that shows estimated revenues and costs at multiple activity levels. true or false
maxonik [38]

Answer:

A static budget is one that shows estimated revenues and costs at multiple activity levels.

True

Which of the following is not typically found in a decentralized organization?

Asset center

Explanation:

3 0
2 years ago
Give an example of an output contract associated<br> with school.
Damm [24]

Answer:

one party agrees to purchase the entire production that the other party supplies.

3 0
2 years ago
Assume that a country with an open economy has a fixed exchange-rate system and that its currency is currently overvalued in the
olasank [31]

Answer: b. The quantity of the country's currency supplied exceeds the quantity demanded.

Explanation:

A country operating a fixed-exchange rate system would be actively trading its currency to ensure that it remains at a certain rate. If the currency is overvalued, it means that the currency is actually weak and is being propped up by the company's actions in the forex market.

A reason for the weakness would be that the supply is higher than the demand of the currency which means that, as per the rules of supply and demand, the currency is trading at a lower price, i,e., it is weak.

7 0
3 years ago
According to the Mundell–Fleming model, in an economy with flexible exchange rates, expansionary fiscal policy causes net export
maxonik [38]

Answer: Decrease and Increase

Explanation:

According to the Mundell–Fleming model, in an economy with flexible exchange rates, expansionary fiscal policy will cause the net exports to decrease. Expansionary fiscal policy shifts the IS curve rightwards, as a result BOP surplus created in the economy. So, exchange rate decreases to shift the BOP back to its initial position. As a result of lower exchange rate, exports falls. Hence, net exports decreases.

Expansionary Monetary policy will cause the net exports to increases. Expansionary Monetary policy shifts the LM curve rightwards, as a result BOP deficit created in the economy. So, exchange rate increases to shift the BOP back to its initial position. As a result of higher exchange rate, exports increases. Hence, net exports increases.

5 0
3 years ago
The following selected transactions were completed by Fasteners Inc. Co., a supplier of buttons and zippers for clothing:
Reil [10]

Answer:

20Y3

Nov. 21 :

Debit Notes receivable $66,000

Credit Accounts receivable $66,000

<em>(To recognize notes receivable iro past due account)</em>

Dec. 31:

Debit Interest revenue $161.33

Credit Interest receivable $161.33

<em>(To record accrued interest on notes receivable)</em>

Jan. 20:

Debit Cash $66,880

Credit Notes receivable $66,000

Credit Interest receivable $880

<em>(To record payment of note and interest on Nov. 21 notes)</em>

Explanation:

Note receivable is a promissory note with a written promise made by the borrower to the lender (payee) to pay a certain, definite sum at a specified date.

Interest revenue on the notes is calculated as: Principal x Interest Rate x Time

In this case, the total interest expense is $66,000 x 8%/12 x 2 months = $880.

Total interest expense to the Company as at December 31 is therefore $880 / 60 days x 11 days = $161.33.

8 0
2 years ago
Other questions:
  • The census bureau and the u.s. department of commerce are examples of
    7·1 answer
  • A variable used to model the effect of categorical independent variables in a regression model which generally takes only the va
    12·1 answer
  • There is an oil refinery located on a river. A fish farm is located in the bay, and is adversely affected by the oil refiner’s w
    13·1 answer
  • Scenario: Phillip and Joseph are two classmates who represented their college in a quiz competition as a team and won $500. Howe
    12·1 answer
  • There is a rule of thumb which can be used as an approximation called the Rule of 72 to find interest or period of time, given t
    13·1 answer
  • If Colombia spends 2 hours producing coffee and 6 hours producing oranges, and Cuba spends 3 hours producing coffee and 1 hour p
    15·1 answer
  • Claude received notice that his disability benefits had ended and that he must resume working. Is Claude entitled to a hearing?
    10·2 answers
  • The nominal exchange rate is the price of one currency in terms of another currency. A nominal exchange rate specifies how many
    9·1 answer
  • A mode of exchange that implies a specific location for the transactions to occur and allows or fosters the negotiation of price
    5·1 answer
  • Interest payable, income tax payable and salary payable are all examples of _______.
    11·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!