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Phil and Jill bought a fishing lodge for $750,000. They paid $75,000 down and agreed to...

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Finance

Phil and Jill bought a fishing lodge for $750,000. They paid$75,000 down and agreed to make payments at the end of every monthfor fifteen years. Interest is 6% compounded quarterly.

a) What size payments are the Phil and Jill making everymonth.

  1. b) How much will they owe after ten years?

  2. c) How much will they have paid in total after 15 years?

  3. d) How much interest will they pay in total?

Answer & Explanation Solved by verified expert
3.9 Ratings (766 Votes)

Loan = principal-down = 750000-75000=675000

EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100
? = ((1+6/(4*100))^4-1)*100
Effective Annual Rate% = 6.1364
EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100
6.1364 = ((1+Stated rate%/(12*100))^12-1)*100
Stated rate% = 5.9703

a

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]
C = Cash flow per period
i = interest rate
n = number of payments
675000= Cash Flow*((1-(1+ 5.9703/1200)^(-15*12))/(5.9703/1200))
Cash Flow = 5685.21

b

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]
C = Cash flow per period
i = interest rate
n = number of payments
PV= 5685.21*((1-(1+ 5.9703/1200)^(-10*12))/(5.9703/1200))
PV = 512775.1

c

total paid = CF*years*months per year = 5685.21*15*12=1023337.8

d

Interest =total paid-loan = 1023337.8-675000=348337.8
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