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77julia77
6 days ago
11

Ann would like to buy a house. It costs $2,500,000. Her down payment will be $50,000. She will take out a mortgage for the remai

nder. It will be a 30 year, fully amortizing, FRM, with constant monthly payments and monthly compounding. The annual interest rate is 4.00%. She will pay $5,000 in closing costs at origination. She will also pay 1.75% of the balance in buy-down points at origination. Note: the home is bought and the loan is taken in month 0, the first payment is due in month
1. In the spreadsheet where it says "cash inflow", "outflow" and "net cash flow" you should only take into account cash flow related to the mortgage.
2. Fill in the spreadsheet (sheet "FA AMORTIZATION SCHEDULE") for Ann. (It is called an amortization schedule or amortization calendar.)
3. Compute Ann's annualized IRR for the mortgage in the spreadsheet. (Use the net cash flow.)
(3.a) What is the annualized IRR for the mortgage?
(3.b) Is it higher or lower than the mortgage contract rate?
(3.c) Why? in excel
Business
1 answer:
soldi70 [3.4K]6 days ago
7 0
Please refer to the attached Excel file for the cash flow breakdown. The Equated Monthly Installment (EMI) is calculated by considering that there will be a balloon payment due at term's end. Additionally: 3b) The IRR is below the mortgage contract rate. 3c) This lower IRR is due to the presence of a balloon payment. You can find the cash flow calculations in the spreadsheet.
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