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monroe17

Miss Crystal Palace just purchased – you guessed it – a crystal palace for $650,000. She makes a 25% down payment and finances the balance with a mortgage at an interest rate of 5.6% for 15 years, making monthly payments. a. What amount will she borrow? b. Complete the amortization table for the first three payments. (Show all work!)

  • one year ago
  • one year ago

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  1. phi
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    can you answer (a) ? 75% of 650,000 or 650,000- 25% of 650,000

    • one year ago
  2. monroe17
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    162500?

    • one year ago
  3. monroe17
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    oh wait no. 649999.75?

    • one year ago
  4. monroe17
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    no isn't my first answer right?

    • one year ago
  5. phi
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    If you put down a down-payment, do you expect it to be all 650,000? to do this, remember that 25% is the same as 25/100 (or 1/4)

    • one year ago
  6. monroe17
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    is it 162500?

    • one year ago
  7. phi
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    that is the down payment. How much is the loan?

    • one year ago
  8. monroe17
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    162500(1+0.056/12)^12*15 162500(1+0.056/12)^180 (162500)(2.311845392)=$375,674.88

    • one year ago
  9. monroe17
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    that's what I did...

    • one year ago
  10. monroe17
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    ohh in my equation where i put 162500.. is that supposed to be 487500 instead?

    • one year ago
  11. phi
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    162,500 is 1/4 of the 650,000 162,500 is the amount paid up front. You must now borrow the remainder. so your work up above looks good except 162500 is not the correct amount for the loan

    • one year ago
  12. monroe17
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    the amount of the loan is 1,127,024.63?

    • one year ago
  13. phi
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    For (a), I think they want 487,500 to do (b) you have to figure out how much the total loan ends up costing. Is that the 1,127,024 number?

    • one year ago
  14. monroe17
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    yes the total loan I calculated is 1,127,024.63 I believe.

    • one year ago
  15. phi
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    now find the monthly payment

    • one year ago
  16. monroe17
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    how? what formula?

    • one year ago
  17. monroe17
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    6261.25 a month?

    • one year ago
  18. phi
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    now you can do the amortization schedule start with the loan balance at the start 487500 add one month of interest (0.056/12)*487500 then subtract off the payment to get the loan balance for the next month. do the same thing for the 2nd (and 3rd) month, except use the new loan principal

    • one year ago
  19. monroe17
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    what new loan principal?

    • one year ago
  20. phi
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    when you make a payment, the amount you owe goes down

    • one year ago
  21. monroe17
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    (0.056/12)*487500= 2275

    • one year ago
  22. monroe17
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    487500-2275= 485225 for the next month?

    • one year ago
  23. monroe17
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    2264.38--485235.62 2264.43--482971.19

    • one year ago
  24. monroe17
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    how do I put that in a chart though with the.. amount of payment interest payment applied to principal and balance?

    • one year ago
  25. phi
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    OK, I just checked about loans. there is a formula to figure out the monthly payment FV= payment *( (1+i)^n -1)/i where future value FV is the number you found, does this look familiar?

    • one year ago
  26. monroe17
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    yeah, give me a sec.

    • one year ago
  27. monroe17
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    so the formula I used gave me 9268.65 as the monthly payment

    • one year ago
  28. phi
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    how? I get something else

    • one year ago
  29. monroe17
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    P=1127024.63 n=180 r/m=0.56/12=0.0046666667 1127024.63(1+0.0046666667)^180=R[(1+0.0046666667)^180-1)/(0.0046666667)] 2605506.713=R(281.1097278) R=9268.65

    • one year ago
  30. monroe17
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    the amount is 1127024.63 the annual rate is 5.6% and the time is 15 years

    • one year ago
  31. monroe17
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    and the interest payment is 5259.45

    • one year ago
  32. phi
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    I match up, but with 1127024.63=R(281.1097278)

    • one year ago
  33. monroe17
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    4009.2 is the applied principal and the balance is 1127024.63

    • one year ago
  34. monroe17
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    do I not solve 1127024.63(1+0.0046666667)^180 that?

    • one year ago
  35. monroe17
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    because in this example I have is shows to do that..

    • one year ago
  36. phi
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    for your formula, it looks like you should use the original loan amount on the left hand side. Do you notice that the left side is future value (1,237,024) which can be calculated as 487500*(1+0.056/12)^180

    • one year ago
  37. monroe17
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    ohh so after solving it becomes 1127024.63

    • one year ago
  38. monroe17
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    so is the monthly payment 4009.20?

    • one year ago
  39. phi
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    yes. so now to the amort. to answer amount of payment interest payment applied to principal and balance? you have the first part. interest is principal* 0.0046666667 (5.6% /12) so you start with P (487500) add interest subtract payment get new P (call it P2 for second month) The interest payment is the amount of interest due. the applied to principal is the amount of the payment left over after paying the interest P2 is the balance

    • one year ago
  40. monroe17
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    wait wait.. is the interest payment 5259.45? (1127024.63)(0.0046666667)(1)

    • one year ago
  41. phi
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    No, you use Present value (not future value) when you apply the interest.

    • one year ago
  42. monroe17
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    (487500)(0.0046666667)(1)=2275.00

    • one year ago
  43. phi
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    that looks good. now the payment pays that interest and what is left over pays down the principal

    • one year ago
  44. monroe17
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    4009.20-2275.00=1734.20?

    • one year ago
  45. phi
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    so now how much is the new principal?

    • one year ago
  46. monroe17
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    485765.8?

    • one year ago
  47. phi
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    so put those numbers in the first row. now do it again with P=485765.80

    • one year ago
  48. monroe17
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    so.. 1734.20*0.0046666667*1?

    • one year ago
  49. phi
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    You seem to be missing the main point. you pay interest on the dollars you owe (think of it as rent) after one payment you owe 485765.80. that is what the interest is on (not the 1734)

    • one year ago
  50. monroe17
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    2266.91? that is the next interest payment for month 2?

    • one year ago
  51. phi
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    yes

    • one year ago
  52. monroe17
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    then 1742.29 is the applied principal for month 2?

    • one year ago
  53. phi
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    yes

    • one year ago
  54. monroe17
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    then the next balance is 484023.51?

    • one year ago
  55. phi
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    yes. one more payment to go

    • one year ago
  56. monroe17
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    2258.78 for the interest payment?

    • one year ago
  57. monroe17
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    and 1750.42 and the applied principal?

    • one year ago
  58. phi
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    yes

    • one year ago
  59. phi
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    Here is a site that computes the amort http://bretwhissel.net/cgi-bin/amortize

    • one year ago
  60. monroe17
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    thank you so much for your help!

    • one year ago
  61. phi
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    It helped remind me how to do this stuff. It is a bit complicated.

    • one year ago
  62. monroe17
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    haha yeah, well before I had absolute no idea where to start. Thank you so much for helping me..

    • one year ago
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