Holooly Plus Logo
Holooly Plus Logo

Question 7.4: Joanne has taken out a €200,000 mortgage over 20 years at 8%......

Joanne has taken out a €200,000 mortgage over 20 years at 8% per annum. Calculate her repayment amount per annum to amortize the mortgage.

Step-by-Step
The 'Blue Check Mark' means that this solution was answered by an expert.
Learn more on how do we answer questions.
Report Answer

We apply the formula to calculate her annual repayment:

A=\frac{P\;r}{\left[1-\frac{1}{(1+r)^{n}}\right]}

 

A=\frac{200000\ \ast\ 0.08}{\left[1-\frac{1}{(1+0.08)^{20}}\right]}

= \frac{160000}{\left[1-\frac{1}{4.661}\right]}

= €20,370

We adjust the formula for the more common case where the interest is compounded several times per year (usually monthly), and so n = # years ∗ # compoundings, and the interest rate per compounding period is i = r/# compoundings.

Related Answered Questions

Question: 7.9

Suppose an investor purchases a 5-year €10,000 bond when it is issued on January 1, 2020 at a coupon rate of 6% with interest paid bi-annually, and the market rate of interest is 4%. Determine the value of the bond on July 1, 2023. ...

Verified Answer:

The value of the bond is determined from the prese...
Question: 7.8

Suppose an investor purchases a 5-year €10,000 bond when it is issued on January 1, 2020 at a coupon rate of 6% with interest paid bi-annually, and the market rate of interest is 4%. Determine the present value of the bond on January 1, 2020. ...

Verified Answer:

The present value of the bond is determined from t...
Question: 7.7

A borrower is paying €1200 monthly on a 20-year mortgage where the interest rate is 4% compounded monthly. Determine the following: 1. The principal borrowed 2. The principal amount outstanding at the start of year 20. ...

Verified Answer:

The number of payment periods is 20 ∗ 12 = 240 and...
Question: 7.6

For the previous example, determine the following at the end of the first period: 1. The amount of interest repaid 2. The amount of the principal repaid 3. The amount of the principal outstanding. ...

Verified Answer:

The amount paid at the end of the first period is ...
Question: 7.5

A mortgage of £150,000 at 6% compounded monthly is amortized over 20 years. Determine the following: 1. Repayment amount per month 2. Total amount paid to amortize the loan 3. The cost of financing. ...

Verified Answer:

The number of payments n = #years ∗ payments per y...
Question: 7.3

Bláithín has commenced employment at a company that offers a pension in the form of an annuity that pays 5% interest per annum compounded monthly. She plans to work for 30 years and wishes to accumulate a pension fund that will pay her €2000 per month for 25 years after she retires. How much does ...

Verified Answer:

First, we determine the value that the fund must a...
Question: 7.2

Calculate the present value of a series of payments of $1000 with the payments made for 5 years at a discount rate of 10%. ...

Verified Answer:

The regular payment A is 1000, the rate r is 0.1 a...
Question: 7.1

Sheila is investing €10,000 a year in a savings scheme that pays 10% interest every year. What will the value of her investment be after 5 years? ...

Verified Answer:

Sheila invests €10,000 at the start of year 1 and ...