Answer to Question #82097 in Financial Math for Inga

Question

Suppose a company wishes to take out a $5,000,000 mortgage to purchase a building. The bank has offered the company a 20-year table mortgage, repayable in 240 equal monthly instalments (at the end of each month) at a nominal interest rate of 9% per annum, compounded monthly.

(a) What is the monthly instalment the company will pay?

(b) After 120 months of paying off the loan, interest rates rise to 12% per annum, compounded monthly. What should the remaining 120 monthly payments be?

Answer 1

(a) The monthly installment the company will pay is

(5,000,000*(1 + 0.09/12)^240)/240 = 125,190.66.

(b) After 120 months of paying off the loan, interest rates rise to 12% per annum, compounded monthly.

The remaining 120 monthly payments will be

(5,000,000*(1 + 0.12/12)^120)/120 = 137,516.12.