quick recap- business math

8/8/2019 Quick Recap- Business Math

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Quick RecapQuick Recap

8/8/2019 Quick Recap- Business Math

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ProblemProblem:: NewNew VentureVenture CorporationCorporation hashastakentaken outout aa $$55 m illionm illion ,, 3030--year,year, 1010percentpercent m ortgagem ortgage onon itsits newnewmanufacturingmanufacturing facilityfacility..WeWe havehave toto findfind outout ::

a) How much will New Venture pay each monthto discharge this mortgage

b) How much of the first payment is for interest,and by how much does it reduce the balanceowed

c) How much of the second payment is forinterest, and by how much does it reduce thebalance owed

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Obj ectives:Obj ectives:

a) To find out the annuity (R) for theamortization of the mortgage

b) To find out the Interest Charge andReduction of Balance Ow ed fromthe first payment

c) To find out the Interest Charge andReduction of Balance Ow ed fromthe second payment

8/8/2019 Quick Recap- Business Math

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T im e diagra mT im e diagra m

P= $5,000,000

R R R R R R

R = ?

1 2 3 4 5 6360

n= 30 Years

i = 10 % compounded monthly

8/8/2019 Quick Recap- Business Math

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S olution : a.S olution : a.

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S olution: b .S olution: b .

a) Beginning Balance Owed: $5 ,000,000b) Payment (R): $4 3,878. 5 8c)

Interest Charge (Pin):$4

1,666.67d) Reduction of Balance Owed (b-c):$2 ,2 11.91

e) Ending Balance Owed: $4 ,997,788.09

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S olution: c.S olution: c.

a) Beginning Balance Owed: $4 ,997,788.09b) Payment (R): $4 3,878. 5 8c)

Interest Charge (Pin):$4

1,64

8.2

3d) Reduction of Balance Owed (b-c):$2 ,2 30.3 5

e) Ending Balance Owed: $4 99 555 7.7 4

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T hanks to AllT hanks to All