Jose LaGuardia mortgage loan

Question 1

Jose LaGuardia takes out a $200,000 mortgage loan from the Bears Credit Union. The terms are 15 years, 9 percent, and annual payments. The credit union decides to sell the loan at the end of Year 4 in a 12 percent market.

1. What is the loan balance at the end of year 4? 
2. What amount will the credit union realize, assuming no prepayment is expected on the loan? (1 point)
3. What is the dollar and percent discount for the loan in part b? (1 point)
4. Assuming prepayment at the end of year 10 and sale of the loan at the end of year 4, at what price is the loan likely to sell? (2 points)
5. Irena James buys the loan at the end of year 4 for $140,000. Assuming that it is not prepaid, what yield (IRR) should she realize? 
6. Irena James buys the loan at the end of year 4 for $140,000. Assuming that it will be prepaid at the end of year 10, what yield (IRR) should be realized? 

Question 2

How many months does it take to amortize a loan with an outstanding loan balance of $135,895, monthly payments of $1,245, and an interest rate of 10 percent?

Question 3

What is the outstanding loan balance at the end of year 15 on a 30-year, $750,000 loan at 8 percent with monthly amortization?

Related – (Solution) Equity multiple for Cash Flow at Stabilization

Solution

Question 1: Jose LaGuardia Mortgage Loan

Given:

• Loan Amount: $200,000
• Interest Rate: 9% annually
• Term: 15 years
• Annual Payments

a) Loan Balance at the End of Year 4

Step 1: Calculate Annual Payment

Formula:

P = 200,000 (loan amount)

R = 0.09 (annual interest rate)

N = 15 years

Substituting the values:

Step 2: Calculate Loan Balance at End of Year 4

Formula:

P = 200,000

r = 0.09

n=15

t=4

Substituting the values:

Correct Answer: $168,800

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