SOLUTION: A real estate Speculator purchases a tract of land for $1000000 and assumes a 25 year mortgage at 4.2% interest compounded monthly. suppose that after five more years the mortgage

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Question 1140077: A real estate Speculator purchases a tract of land for $1000000 and assumes a 25 year mortgage at 4.2% interest compounded monthly.
suppose that after five more years the mortgage is required to be paid in full.How much will then be due?
Answer by Theo(13342) (Show Source):
You can put this solution on YOUR website!
tract of land equals 1 million dollars.

this is paid with a 25 year mortgage at 4.2% interest per year compounded monthly.

i used the texas instruments BA-II financial calculator.

first inputs were:

present value = 1000000
future value = 0
number of time periods = 25 years * 12 months per year = 300 months.
interest rate per time period = 4.2% per year / 12 = .35% per month.
payments made at the end of each month.

i tell the calculator to compute the payment amount.
the calculator tells me that the monthly payment needs to be $5389.423179.

i change the number of time periods to 20 years * 12 months per year = 240 months.

i tell the calculator to compute the present value.
the calculator tells me that the present value is equal to $874,096.4935.

what happened?

i first had the calculator tell me the payment amount for the 25 year loan.
once i had the payment amount, i then had the calculator tell me the present value of that payment amount for 20 years.

the original number of months was 300.
that set the payment amount.
once that was set, the revised months was 240.
300 minus 240 = 60 months = 5 years.

the present value of the same payments for the last 240 months is the remaining balance after the first 60 months are over.

this can be seen in more detail using excel, as shown below.

you can see from the excel printout that the remaining balance at the end of 60 months is $874,096.49.

that compares favorably to what i got using the TI-BA-II calculator, which showed me that the present value of the remaining 20 years on the loan was $874,096.4935.