Mortgage to finance the purchase of a large tract of land

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Reference no: EM13810315

1. You have just arranged for a $1,580,000 mortgage to finance the purchase of a large tract of land. The mortgage has an APR of 5.8 percent, and it calls for monthly payments over the next 20 years. However, the loan has an eight-year balloon payment, meaning that the loan must be paid off then.

How big will the balloon payment be?

2. Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $28,500 per month for 25 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 10 years at an estimated cost of $385,000. Third, after he passes on at the end of the 25 years of withdrawals, he would like to leave an inheritance of $1,725,000 to his nephew Frodo. He can afford to save $3,400 per month for the next 10 years. If he can earn a 11 percent EAR before he retires and a 8 percent EAR after he retires, how much will he have to save each month in years 11 through 30?

Reference no: EM13810315

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