5 Ann wants to buy an office building which costs $2,000,000. She obtains a 30 y

Question

5

Ann wants to buy an office building which costs $2,000,000. She obtains a 30 year fully amortizing fixed rate mortgage with 80% LTV, an annual interest rate of 4%, with monthly compounding and monthly payments.

The mortgage has a 2% prepayment penalty if the borrower prepays in the first 5 years. Suppose Ann makes the required monthly payment for 3 years and prepays after her final monthly payment at the end of 3 years. What is the annual IRR on Ann’s mortgage?

ANSWER: 4.60%

I have the answers and submitted them up there ^^ . I need the calculator solutions, not excel. Please do NOT submit incorrect responses. I already checked chegg. Either noone submitted calculator responses, or what they submitted was wrong. So please dont try to copy/paste wrong asnwers. Thanks in advance!

Explanation / Answer

Cost of building $2,000,000.00 Loan = 80% $1,600,000.00 Rate =4%/12 0.33% Period = 30 x 12 360 Monthly PMT $7,638.64 Enter the data in the calculator : Type 360 into N, .33 into I/Y, and 1,600,000 into FV. Now, press CPT PMT and you will find out Monthly Payment = $7,638.64 Principal left after 3 years of monthly payment we will calculate FV Rate =4%/12 0.33% Period = 3 x 12 36 Monthly PMT $7,638.64 Loan = 80% $1,600,000.00 Future Value $1,511,979.61 Enter the numbers into the appropriate keys: 36 into N, .33 into I/Y, 7638.64 (a cash inflow) into PMT and put a 1600000 into PV and then press CPT FV to find that the answer is -1,511,979.61 Prepayment payment including 2% prepayment fees = $1,511,979.61 x 1.02 $1,542,219.20 Final payment = 1542219.20+7638.64 $1,549,857.85 Press CF 2nd CE/C. The calculator will prompt you to enter each cash flow and then the frequency with which it occurs. For now, just accept the default frequency of 1 each time. Now, press CF then 1600000 Enter down arrow, 7638.64 Enter down arrow (twice), 7638.64 Enter down arrow (twice), 7638.64 Enter down arrow (twice), and so on till 35th payment and finally 1549857.85 Enter down arrow (twice) then press IRR and then CPT, and you'll find that the IRR is .38% Annual IRR = Multiply .38% x 12 months 4.60% Year 0 -1600000 1 $7,638.64 2 $7,638.64 3 $7,638.64 4 $7,638.64 5 $7,638.64 6 $7,638.64 7 $7,638.64 8 $7,638.64 9 $7,638.64 10 $7,638.64 11 $7,638.64 12 $7,638.64 13 $7,638.64 14 $7,638.64 15 $7,638.64 16 $7,638.64 17 $7,638.64 18 $7,638.64 19 $7,638.64 20 $7,638.64 21 $7,638.64 22 $7,638.64 23 $7,638.64 24 $7,638.64 25 $7,638.64 26 $7,638.64 27 $7,638.64 28 $7,638.64 29 $7,638.64 30 $7,638.64 31 $7,638.64 32 $7,638.64 33 $7,638.64 34 $7,638.64 35 $7,638.64 36 $1,549,857.85 IRR 0.38% Annual IRR = Multiply .38% x 12 months 4.60%

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