Miscellaneous

Question 1

Annuity

When RECEIVING FUNDS in an Annuity calculation Enter amount as. Positive amount.

Question 2

Loan of 1 year

Calculating Interest Only Payments
I/YR 5%
P/yr 12 (monthly)
N = 1
PV $250,000
FV
PMT

Answer 2

Set N as 1. Enter PMT will show the amount to be paid every month.
$1,458.33 monthly interest payment

Question 3

Converting Nominal Rate to PerioDic rate and into a percent.

Answer 3

Example 
7% annual rate compounding monthly 
7 divided by 12
7/12 = .583333
Enter % sign gives you .00583333
Previous example 250,000 x 00583333 = 1,458.33333

Question 4

Find the nominal rate with quarterly compounding that is equivalent to i/mo =1.5%

We want to find j4

Answer 4

Step 1 find j12. Times 12. 1.5 x 12. J12 18%

Step 2 Convert j12 = 18% to j4 = ?

Nom 18%
P/yr 12
Eff
P/yr 4
Nom 18.271350

Question 5

After calculating N at the end PRESS 1 digit higher than shown. i.e. 295.3678. Enter 296 and Press FV. Deduct from regular PMT Amount to get FINAL PMT.

Calculate Final Payment (3 Steps)
116,000 mortgage, 15% compounded semi -annually, amortization 25 years, round payments next $10

Step 1 Interest Rate Conversion

Nom 15%
P/yr = 2 (Semi Annual compounding)
Eff  (compute)
P/yr 12 (monthly payments)
Nom%  (compute)

Step 2 Calculate Payment

PV = $116,000
FV = 0
N = 25yrs times 12 monthly payment 25x12 = 300
Enter PMT -1,445.528995
Re- Enter Rounded to $1,450

Step 3

Enter N = 291.223187
Re-enter round up to 292
Enter FV = 1124.861694
1,124.86 - 1,450 = -325.14.

325.14 is final payment

Question 6

Interest Only Loan with Interest rate Conversion

2 Steps

j2 = 10%, semi annual compounding, with monthly payments. Loan Amortization is 10 years.
PV $100,000
FV -$100,000
N= 10 years times 12

Answer 6

Remember FV will be same amount as PV but negative. This because interest only payments and the future value of the PRINCIPAL WILL STILL BE $100,000. Enter as negative on calculator

Step 1 Interest Rate Conversion
NOM = 10%
P/yr = 2 (semi annual compounding)
Eff
Pyr = 12 (monthly payments)
NOM% 9.797815

STEP 2 Find interest only Payment

N = 10x12 = 120
PV 100,000
FV -100,000
PMT = 816.48

Question 7

Interest Accruing Loan (no payments if interest). Basically the amount of interest is deducted up front and you are ADVANCED THE PRINCIPLE LESS INTEREST IN UP FRONT ON DAY 1. Really you are calculating an I/yr equation for PV.

An interest accruing mortgage loan that requires the $500,000 be paid at the end of a 5 year term of loan. If the rate of interest on the loan is j12 = 12%, calculate the amount of funds advanced.

Answer 7

1. 283,713.43
2. 279,197.41
3. 313,500.00
4. 275,224.81. Correct

I/yr  12% nominal rate
P/yr  12. Compounding frequency 
FV $500,000
N 5 years time 12 = 60
PMT 0
PV        =. 275,224.81

Question 8

Find Equivalent Nominal Rate

Means Interest Rate Conversion

Question 9

Accelerated Bi-weekly Payments

Mortgage loan for $200,000 j2=5.5%, amortization 20 Years, 5 year term, monthly payment, round payment to next highest dollar
1st Step Calculate monthly Payments
2nd Step Divide payment by 2; Do interest rate Conversion to 26 payments, remember N will change to 20 years times 26= 520. OSB at 5 years will be 5 times 26 =130.

Answer 9

Step 1

J2=5.5%
NOM 5.5
P/yr = 2
Eff
P/yr  12
NOM 
N = 20 Years x 12 = 240
PV = 200,000
FV = 0
PMT -1,368.78  or Rounded $1,369. 

Step 2
1369 divided by 2 = 684.5 or rounded $685

NOM 5.5%
P/yr = 2
Eff
P/yr 26
NOM
Enter PMT = 685
N = 20 years x  26 = 520

Question 10

Below Market Rate

Vendor take Back (VTB)
- vendor financing

Question 11

Interest Act

Requires that at the interest rate quoted in a mortgage contract as a nominal with either Annual Or Semi-Annual compounding written into contract as Nominal Rate. Any other compounding must be converted to Equivalent Nominal Rates with Annual or Semi Annual to match the frequency of periodic payments.

Question 12

Nominal Rate of Interest

The frequency of compounding of the nominal interest rate must match the frequency of payments

Question 13

Amortization Period

The amortization period is used to calculate the size of the required payments. Eg, monthly payments over 25 years is equal to 25 x 12= 300

Question 14

Straight Line Principal Reduction Loan
— declines over time because of principal reduction
— every payment will have same constant amount of principal reduction.
— interest will vary based on rates and days in the month. This means total payment could be different every month.

Question 15

Safety Margin to find Annual Debt Service or otherwise Maximum PMT Amounts

Safety margin is usually stated as a %. Ex. 20%. NOI = 650,000.

NOI X (1-Safety Margin)

650,000 X (1- 20)
650000 X .80 = 520,000.
520,000/12 = 43,333.33. Max monthly PMT

Question 16

Blend and Extend

Step 1 - Find PV, from portion of PMT for New Funds, N = Yrs Remaining in MTG.

Step 2 — just enter the TOTAL PMT Amount for the whole MTG Press PV

Step 3 Use Previous PV and enter into FV as NEGATIVE. PRESS PMT to Zero
Press PV add to Step 1 PV.

Question 17

Sticky Mortgages
— wide use of advance commitments for a rate of interest before the loan is advanced Ex. They pre-approve you a low rate for 90 days.
— long term nature of the loan contract
— weak secondary market.

Question 18

BPCPA. TOTAL VALUE PAID
- used for APR calculation
Ex 5 year term
1. Find PMT 
2. Find interest Paid for the 5 year Term 1#60AMORT ==.   Add this to FACE VALUE  OF MORTGAGE

Question 19

Graduated Mortgages - payments increase over time. - people expect incomes to rise

Straight Line Principal Reduction — Principal is being reduced the payments will be reducing interest thereby lower payments