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Homework answers / question archive / Sheri Dan has applied for a mortgage from a Canadian bank
Sheri Dan has applied for a mortgage from a Canadian bank. The mortgage would be for $160,000. The nominal interest rate is 8% per year, compounded semi-annually. The mortgage will be paid off in 22 years.
Requirements:
A) What is the effective annual rate? (round your answer to two decimal places)
B) If the mortgage requires monthly payments, calculate Sheri's payment. (round your answer to the nearest dollar)
C) If the mortgage requires weekly payments, calculate Sheri's payment. (round your answer to the nearest dollar)
D) If the mortgage requires bi-weekly payments, calculate Sheri's payment. (round your answer to the nearest dollar)
A) Computation of the effective annual rate (EAR):-
EAR = (1+rate/n)^n-1
= (1+8%/2)^2-1
= 1.0816 - 1
= 8.16%
B) We can calculate the monthly payments by using the following formula in excel:-
=pmt(rate,nper,-pv,fv)
Here,
Pmt = Monthly payments
Rate = 8.16%/12 = 0.68% (monthly)
Nper = 22*12 = 264 periods (monthly)
PV = $160,000
FV = $0
Substituting the values in formula:
= pmt(0.68%,264,-160000,0)
= $1,306.29 Or $1,306
C) We can calculate the weekly payments by using the following formula in excel:-
=pmt(rate,nper,-pv,fv)
Here,
Pmt = Weekly payments
Rate = 8.16%/52 = 0.1569% (weekly)
Nper = 22*52 = 1144 periods (weekly)
PV = $160,000
FV = $0
Substituting the values in formula:
= pmt(0.1569%,1144,-160000,0)
= $301.17 Or $301
D) We can calculate the bi-weekly payments by using the following formula in excel:-
=pmt(rate,nper,-pv,fv)
Here,
Pmt = Bi-weekly payments
Rate = 8.16%*2/52 = 0.3138% (Bi-weekly)
Nper = 22*52/2 = 572 periods (Bi-weekly)
PV = $160,000
FV = $0
Substituting the values in formula:
= pmt(0.3138%,572,-160000,0)
= $602.45 Or $602
