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ENGR 3360U Winter 2014

Unit 6.4-6

AW of Permanents, Salvae an! "ortaes

Dr. J. Michael Bennett, P. Eng., PMP,

UOIT,

Version 2014-I-01

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Unit 6 Ann#al $as% &lo'

$%ane Re(or!

2014-)-01 )nitial $reation

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6.4 AW of a Permanent )nvestment

)f an investment %as no finite ((le or a ver lonestimate! life/ it is (alle! a eret#al or ermanentinvestment

)f P is t%e resent 'ort% of t%e (ost of t%e investment,

t%en t%e AW val#e is P times i 

AW A Pi/AW is a(t#all t%e amo#nt of interest P 'o#l! earn ea(% ear,

forever.

Remember: P = A/i

from the previous unit

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Eamle 6.5

A roa! m#st et ast a mo#ntain. %ere are 2

otions7 t#nnel t%ro#% t%e mo#ntain or 8#il!

a roa! aro#n! it s#orte! 8 (on(rete illars.

%e (ost for t%e t#nnel is 95.5" an! t%e#sef#l life is infinite. %e roa! 'o#l! (ost

95" 8#t onl last 50 ears. Ass#me 6:.

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Sol#tion

#nnel7 A Pi. So A 5.50.06/ 9330; 

Roa!7 A 5A

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6.5 Salvae >al#e

? W%en t%ere is a salvae val#e at t%e en! oft%e life of an asset, it is reresente! as a

one-time (as% flo' 8enefit at t%e en! of t%e

asset@s life.   Eamle7 Salvae val#e S/ of asset 'it% a

4 ear life

 0 1 2 3 4

S

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Salvae >al#e, (ont@!.

? W%en t%ere is an initial (ost P/ follo'e! 8 a salvaeval#e S/ t%e ann#al 'ort% AW/ (an 8e (om#te! 87

AW PA

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6.6 "ortaes in $ana!a

? %e leal !o(#ment7   Con term amortiDe! loan t%at is #se! for 8#in roert

   )f aments are not ma!e, t%e len!er (an seiDe t%e roert

an! sell it to re(over t%e !e8t

   Ceal !o(#ment o#tlines t%e terms an! (on!itions forreament of t%e loan amortiDation erio!, interest rate,

 enalties, et(./

? AmortiDation7

   Cent% of time it taes to a off loan ass#min7? Payments are made on time with no additional payments

? Interest rate doesn’t change 

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"ortaes in $ana!a

? AmortiDation erio!s are ti(all 8et'een7   5 ears to 35 ears

   %e norm is 20 or 25 ears

? erms   A mortae is often ma!e # of smaller erio!s

(alle! terms@ an! a term is t%e erio! in '%i(%

t%e interest rate term@ is fie!.   At t%e en! of t%e term, t%e mortae (an 8e

rene'e! for a anot%er term at t%e (#rrent interest

rate.

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es of "ortaes

? $onventional@7   &or =5: or less of t%e araise! val#e

?  Ii%-ratio@ mortaes7

   Ii%er t%an =5: an! #s#all reJ#ire an o#tsi!eaen( s#(% as t%e $"I$ $entral "ortae

an! Io#sin $ororation/ to ins#re t%e mortae.

? Some Kt%ers7   Ken, varia8le rate, AR", (ae! rate,

(onverti8le rate, se(on!, reverse, an! $I)P.

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"ortae EJ#it an! )nterest Rates

? EJ#it   %e val#e remainin in a roert after all mortae an!

loans reistere! aainst t%e title are s#8tra(te! from its

val#e.

?  )nterest Rate   )nterest rate is eresse! as7

? % compounded semi-annually, not in advance

   An old English term when ledgers were kept by hand

   Nominal rate mortgage at % is actually !% semi-annually

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S#mmar, (ont@!.

? "ortaes in $ana!a are amortiDe! over an#m8er of ears.

? %ere are a n#m8er of tes of mortaes.

? EJ#it7   %e araise! roert val#e val#e of

mortae o'in

? )nterest rate is tra!itionall state! as7   : (omo#n!e! semi-ann#all, not in a!van(e

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$%ater S#mmar (ont.

AW met%o! is often referre! to t%e PW met%o!

AW !eals 'it% onl one life ((le of an alternative

AW offers an a!vantae for (omarin !ifferent-life

alternatives Ass#mtion for AW met%o!7 $as% flo's in one

((le are ass#me! to reli(ate t%emselves in

f#t#re ((les

&or infinite life alternatives, siml m#ltil P 8 i

to et AW val#e