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Dear Sir,
Please help me solve the following conundrum:A mortgage of $30000 for 15 years at 7% has been repaid at the rate of $3290 at the end of each year. If the mortgage is to be closed immediately after the eight annual payment, use the discount factor tables to find the amount still outstanding, giving your answer correct to the nearest $.
A. $19036
B. $21083
C. $3680
D. $17792I have tried time and again but have failed to find any of the answers provided for this question. 🙁
First you need to multiple 3290 by the annuity factor for 8 years at 7%.
This will give you the present value of the amount that has been paid off.
Subtract this from the 30,000 and it will give you the amount still outstanding from the original 30,000.
Then you need to calculate how much this will be in 8 years time. You can get this either by multiplying by 1.07^8, or by dividing by the ordinary discount factor for 8 years a 7%.
Hope that helps 🙂
Yes sir indeed that was very helpful! 🙂 I did manage the first two steps but didn’t know what to do after deducting the amount that has been paid off from $30000. Anyway the answer I got after following your steps is 17729 but the answer given is 17792. Perhaps it was a printing error :3
The reason the answer is a tiny bit different is that the question said to use tables, so the last step they have divided by the 8 year discount factor at 7% instead of multiplying by 1.07^8. Because of rounding in the tables (they are go to three decimal places) it gives a slightly different answer.
In the exam, they will not ‘force’ you to use tables, and to avoid the problem of rounding it will ask for it to the nearest $10 or the nearest $100 – then you will get the same answer whether or not you use the tables.
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