Business Math 205 Case Study

Angeli Razada, Mia Zhao, John Michael Reyes, Ardel Dela Cruz
Bob and Angelique Mackenzie bought a property valued at $84,000 for $15,000 down with the balance amortized o
20 years. The terms of the mortgage require equal payments at the end of each month. Interest on the mortgage is 3.4
compounded semi-annually and the mortgage is renewable after five years.

Present Value = $ 69,000.00 Compunding Periods = 

Time = 20 Payment Periods =
Nominal rate = 3.40% Number of Payments=

Periodic Rate = 0.017 PMT =

i2 = 0.003 Future Value =
C= 0.167

a) What is the size of each monthly payment?

PMT = $ 395.80 The monthly payment for 20 years is $395.80.

Prepare an amortization schedule for the first five-year term. Make sure your values are rounded to the nearest cent
Express totals at the bottom of each column as currency

b) Payment # Paid Amount Interest Portion Principal Portion

0 - - -
1 $395.80 $194.13 $201.67
2 $395.80 $193.56 $202.24
3 $395.80 $192.99 $202.81
4 $395.80 $192.42 $203.38
5 $395.80 $191.85 $203.95
 6 $395.80 $191.28 $204.52
7 $395.80 $190.70 $205.10
8 $395.80 $190.12 $205.68
9 $395.80 $189.55 $206.25
10 $395.80 $188.97 $206.83
11 $395.80 $188.38 $207.42
12 $395.80 $187.80 $208.00
13 $395.80 $187.21 $208.59
14 $395.80 $186.63 $209.17
15 $395.80 $186.04 $209.76
16 $395.80 $185.45 $210.35
17 $395.80 $184.86 $210.94
18 $395.80 $184.26 $211.54
19 $395.80 $183.67 $212.13
20 $395.80 $183.07 $212.73
21 $395.80 $182.47 $213.33
22 $395.80 $181.87 $213.93
23 $395.80 $181.27 $214.53
24 $395.80 $180.67 $215.13
25 $395.80 $180.06 $215.74
26 $395.80 $179.46 $216.34
27 $395.80 $178.85 $216.95
28 $395.80 $178.24 $217.56
29 $395.80 $177.62 $218.18
30 $395.80 $177.01 $218.79
31 $395.80 $176.39 $219.41
32 $395.80 $175.78 $220.02
33 $395.80 $175.16 $220.64
34 $395.80 $174.54 $221.26
35 $395.80 $173.92 $221.88
36 $395.80 $173.29 $222.51
37 $395.80 $172.67 $223.13
 38 $395.80 $172.04 $223.76
39 $395.80 $171.41 $224.39
40 $395.80 $170.78 $225.02
41 $395.80 $170.14 $225.66
42 $395.80 $169.51 $226.29
43 $395.80 $168.87 $226.93
44 $395.80 $168.23 $227.57
45 $395.80 $167.59 $228.21
46 $395.80 $166.95 $228.85
47 $395.80 $166.31 $229.49
48 $395.80 $165.66 $230.14
49 $395.80 $165.01 $230.79
50 $395.80 $164.36 $231.44
51 $395.80 $163.71 $232.09
52 $395.80 $163.06 $232.74
53 $395.80 $162.41 $233.39
54 $395.80 $161.75 $234.05
55 $395.80 $161.09 $234.71
56 $395.80 $160.43 $235.37
57 $395.80 $159.77 $236.03
58 $395.80 $159.10 $236.70
59 $395.80 $158.44 $237.36
60 $395.80 $157.77 $238.03
Total $23,747.72 $10,586.60 $13,161.12

c) What is the cost of the debt during the first five-year term?

PMT= 395.80 Original Debt

Nominal Rate = 3.40% Down Payment

Compounding Periods 2

Time = 5
Payments per Year = 12 Present Value =
 Number of Payments = 60 Principal Balance in 5 years

Periodic Rate = 0.0170

i2= 0.00281 Interest

After Bob and Angelique Mackenzie calculated the principal balance in the first five years, the cost of debt they h

If the mortgage is renewed for a further five years at 4.2% compounded semi-annually, what will be the si
d) of each monthly payment?

Present Value = $ 69,000.00 $ 55,838.89

Nominal Rate = 3.40% 4.20%

Compounding Periods 2

Time = 15

Payments per Year = 12

Number of Payments = 240 60 180

Periodic Rate = 0.0170 0.0210

i2= 0.0028 0.0035

PMT= $ 395.80 $ 417.63

After Renewing the mortage for a further five years at 4.2% compounded semi-annually, Bob and Angelique Mac
 dy
es, Ardel Dela Cruz
down with the balance amortized over
onth. Interest on the mortgage is 3.4%
after five years.

2
12
240

$ 395.80
$ 135,421.37

ment?

payment for 20 years is $395.80.

lues are rounded to the nearest cent.

rrency

Principal Balance

$69,000.00
$68,798.33
$68,596.10
$68,393.29
$68,189.92
$67,985.97
$67,781.46
$67,576.36
$67,370.69
$67,164.44
$66,957.62
$66,750.20
$66,542.21
$66,333.62
$66,124.45
$65,914.70
$65,704.35
$65,493.42
$65,281.88
$65,069.76
$64,857.03
$64,643.71
$64,429.78
$64,215.26
$64,000.13
$63,784.40
$63,568.06
$63,351.11
$63,133.56
$62,915.38
$62,696.60
$62,477.19
$62,257.18
$62,036.54
$61,815.29
$61,593.41
$61,370.91
$61,147.78
 $60,924.03
$60,699.64
$60,474.62
$60,248.97
$60,022.68
$59,795.76
$59,568.19
$59,339.99
$59,111.14
$58,881.66
$58,651.52
$58,420.74
$58,189.30
$57,957.21
$57,724.48
$57,491.09
$57,257.05
$57,022.34
$56,786.98
$56,550.95
$56,314.26
$56,076.90
$55,838.88

ive-year term?

$ 84,000.00

$ 15,000.00

$ 69,000.00
 $ 55,838.89

$ 10,586.61

five years, the cost of debt they had to pay is $10,586.61.

emi-annually, what will be the size

annually, Bob and Angelique Mackenzie will be paying monthly payments of $417.63 for the next 15 years.
 The Mackenzie’s also bought a business for $90,000. They borrowed the money to buy th
compounded semi-annually and are to repay the debt by making quarterly paymen

Present Value = $90,000

Payment Size = $3,645
Nominal Rate = 6.90%
c= 0.50
i2= 0.01710
# of years 8

e) How many payments are required to repay the loan?

33 payments are required to repay the $90,000 loan.

f) What is the term of the loan in years and months?

It will take 8 years and 3 months to for the Mackenzies to pay their loan.

g) Payment Amount Paid Interest Portion

0 - -
1 $3,645 1539.34
2 $3,645 1503.32
3 $3,645 1466.69
4 $3,645 1429.43
5 $3,645 1391.54
6 $3,645 1353.00
7 $3,645 1313.79
8 $3,645 1273.92
9 $3,645 1233.37
10 $3,645 1192.12
11 $3,645 1150.17
12 $3,645 1107.50
13 $3,645 1064.09
 14 $3,645 1019.95
15 $3,645 975.05
16 $3,645 929.39
17 $3,645 882.94
18 $3,645 835.70
19 $3,645 787.65
20 $3,645 738.78
21 $3,645 689.07
22 $3,645 638.51
23 $3,645 587.09
24 $3,645 534.79
25 $3,645 481.59
26 $3,645 427.49
27 $3,645 372.46
28 $3,645 316.48
29 $3,645 259.55
30 $3,645 201.65
31 $3,645 142.75
32 $3,645 82.85
33 $1,304 21.93

Total $ 117,943.95 $ 27,943.95

h) What is the principal reduction in the 6th year?

There is a $12,130.54 principal reduction in the 6th year

i) What is the total cost of financing the debt?

The total payments for the debt is $27,943.95.

j) If Angelique makes a lump sum payment of $10,000 at the end of the fourth year, by how
much is the amortization period shortened?

The amortization period will shorten by 1 year.

 $90,000. They borrowed the money to buy the business at 6.9%
o repay the debt by making quarterly payments of $3645.

Compounding Periods per Year = 2

Payments per Year = 4
Periodic Rate = 0.0345
# of Payments = 33.00
Time = 8.25
# of months 3

quired to repay the loan? 33

uired to repay the $90,000 loan.
Year Month

n in years and months? 8 3

hs to for the Mackenzies to pay their loan.

Principal Portion Principal Balance

- $90,000.00
$2,105.66 $87,894.34
$2,141.68 $85,752.66
$2,178.31 $83,574.35
$2,215.57 $81,358.78
$2,253.46 $79,105.32
$2,292.00 $76,813.32
$2,331.21 $74,482.11
$2,371.08 $72,111.03
$2,411.63 $69,699.40
$2,452.88 $67,246.52
$2,494.83 $64,751.69
$2,537.50 $62,214.19
$2,580.91 $59,633.28
 $2,625.05 $57,008.23
$2,669.95 $54,338.28
$2,715.61 $51,622.67
$2,762.06 $48,860.61
$2,809.30 $46,051.31
$2,857.35 $43,193.96
$2,906.22 $40,287.74
$2,955.93 $37,331.81
$3,006.49 $34,325.32
$3,057.91 $31,267.41
$3,110.21 $28,157.20
$3,163.41 $24,993.79
$3,217.51 $21,776.28
$3,272.54 $18,503.74
$3,328.52 $15,175.22
$3,385.45 $11,789.77
$3,443.35 $8,346.42
$3,502.25 $4,844.17
$3,562.15 $1,282.02
$1,282.02 $0.00

$ 90,000.00

Principal balance(5th year)

uction in the 6th year?
$12,130.54 $40,287.73

principal reduction in the 6th year

financing the debt? $27,943.95

ts for the debt is $27,943.95.

Year  PV1 N
0,000 at the end of the fourth year, by how
n period shortened? 1 $41,622.67 13

period will shorten by 1 year.

Principal balance(6th year)

$28,157.20

Time

3.25