The Fed cuts the Federal Funds rate and the Discount rate and the Prime goes dow
ID: 2489401 • Letter: T
Question
The Fed cuts the Federal Funds rate and the Discount rate and the Prime goes down to 3.5 percent. Al Truistyk owns an exercise center and needs to upgrade his equipment in order to meet his customers’ needs. The equipment costs $275,000 and the lender requires a 10 percent down payment. Al must borrow $250,000 and the lender agrees to a 60-month fixed principal fixed interst rate loan with a rate of Prime plus 4 percent. a. Construct an amortization table for the first 3 months of this loan. b. Instead of a fixed interest loan, the lender gave Al a variable rate loan of prime plus 4 percent. Using the Internet find the current prime lending rate. Construct an amortization table listing Al’s interest payments for the first 3 months of this loan if he borrowed the money on January 1, 2013. 2. The Smiths purchase a $600,000 house and must sell their old home in order to make a 20 percent down payment plus closing costs of $7,000 on the new house. Currently, they have a mortgage balance of $100,000 on their old home, which has been appraised at $300,000 They have been pre-approved by the lender to qualify for a $480,000 mortgage in the new home. The lender offers a bridge loan at 10 percent simple interest. The closing date on the new house is February 13, and the Smiths sell their old home on May 15. How much cash must the Smiths put down on their new house? How much equity do the Smiths have in their old house? How much must they borrow if they take a bridge loan? What is the dollar amount of interest paid on the bridge loan?
Explanation / Answer
a. Loan amortization schedule:
b. The current prime rate is 3.5% and this makes the interest rate to be (3.5 +4) = 7.5%
Month Opening balance Installments Interest Principal Closing balance 1 $2,50,000 $3,678.35 $1,839.00 $1,839.00 $2,48,161.00 2 $2,48,161 $3,678.35 $1,839.00 $1,839.00 $2,46,322.00 3 $2,46,322 $3,678.35 $1,839.00 $1,839.00 $2,44,483.00Related Questions
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