MATH

CLASS 1

GOBC Real Estate/Mortgage Notes

 MATH 1

Payment
Interest rate Present Value
Always
negative!





Future Value

Always negative !

Periods per year







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 MATH 1

INTEREST J- Nominal Rate (Rate for the whole year - all compounding periods!)
8% per annum (year) - rate for the whole year
i – Periodic Rate (Rate per compounding period)
i=

|--------------------------------------| comp. Annually J = 8%

$100 $108 periodic rate = _____ ia =

i= i=

|--------------------|-------------------| comp. Semi annually J = 8%

$100 104 108.160 periodic rate = _____ ise =

i = i = i = i=

|----------|----------|----------|---------| comp. Quarterly J = 8%

$100 $102 $104.04 $106.12 $108.24 periodic rate = _____ iq =

Numbers Letters

J _____ = % Annual Practice:

Calculate the monthly payment
for the following mortgage:
J _____ = % semi-annual
Amortization: 20 years
J _____ = % quarterly I/YR: J12 = 14%
Principal (PV): $40,000
FV = 0 +/-
J _____ = % monthly
Enter from TOP ----> DOWN:

J _____ = % bi - weekly i______= % 20 x 12 N

14 I/YR
40,000 PV
J _____ = % weekly ? PMT
0 +/- FV
12# P/YR
J _____ = % daily
PUSH PMT = 497.4083… +/-

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 MATH 1

LOANS

Interest ACCRUING “Riskiest loan for a Lender” No PMT

No PMT

|----------|----------|----------|----------| Loan + All interest

$1000 $1000 + Int
PV FV

Interest ONLY you can only find Payment!

PV = FV
You cannot find PF or FV
You cannot find N
INT INT INT INT
|--------|--------|--------|--------|
$1,000 $1,000
PV FV

Straight Line Principal Reduction Loan – Payments Decrease with years

Graduated Mortgage – Payments Increase with years

EXAM QUESTION:

The risk on the graduated mortgage comes from:

A. The increasing indebtedness occurring in the
initial years of the loan
B. The decreasing size of the payment over time
1) Only A is true
2) Only B is True
3) Both statements are true
4) Neither statement is true

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 MATH 1

Remember PMT and FV always negative !!!

1). James wants to invest $8,000 at an interest rate of 10% per annum compounded annually. How much
money would he have in his bank account in 5 years?

N J =

IYR PMT =

PV

PMT

FV

#PYR

2). Melissa wishes to purchase a boat in 6 years. It will cost her $20,000. How much must she invest
now, if interest rates are 9.5% per annum compounded semi-annually?

N J =

IYR PMT =

PV

PMT

FV

#PYR

3). Mike arranged an interest only loan of $12,500 for 5 years. The loan carries an interest rate of 16.5 %
per annum, compounded monthly, and requires monthly interest only payments. The amount of those
payments is?

N J =

IYR PMT =

PV

PMT

FV

#PYR

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 CONVERTION OF INTEREST RATES (Going from one J to another J)
MATH 1
Example:

J2 = 10 – contract rate with semi-annual compounding (what you have)

Pmt = 12 – monthly payment frequency (what you need)

Here, the comp freq is twice per year and the pmt freq is monthly. To make sure the proper amount of interest dollars is charged to the
borrower, we must change the comp freq on the interest rate to match the frequency of the payments. So, we do an NPEPN !! The
result of the NPEPN is that the converted NPEPN rate calculates the same amount of interest in dollars as the contract rate would
have! No change in INTEREST AMOUNT charged but just in how it is calculated.

______# Nom We take the J 2 = 10 we are given

what you have
______# PYR
______# EFF
______# PYR
______# NOM what you need And change it to a J 12 = 9.7978…

J52 = 6.5% (contract rate), with quarterly payments

Pmt = ____
______# Nom We take the J 52 we are given
______# PYR what you have

______# EFF
______# PYR what you need
______# NOM And change it to a …? J = 6.5489…

J12 = 11.75% (contract rate), with annual payments

Pmt = _____
______# Nom We take the J 12 we are given
______# PYR what you have
______# EFF
______# PYR
______# NOM what you need And change it to a …? J = 12.4039..

J365 = 16% (contract rate), with semi-annual payments

Pmt =
______# Nom We take the J 365 we are given
______# PYR what you have

______# EFF
______# PYR what you need
______# NOM And change it to a …? J = 16.6536..

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J4 = 20% (contract rate), with monthly payments
Pmt = ____

______# Nom We take the J 4 we are given
______# PYR what you have

______# EFF
______# PYR what you need
______# NOM And change it to a …? J = 19.6756..








4). Sam and Sally recently negotiated a 2nd mortgage in the amount of $24,000 at an interest rate of
19% per annum, compounded semi-annually. The loan is to be amortized over twenty years by the
equal monthly payments. What is the size of the monthly payment to be made by Sam and Sally?


N J =


Pmt =
IYR



PV ______# NOM
______# PYR
______# EFF
PMT ______# PYR
______# NOM

FV

#PYR

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 MATH 1

HOMEWORK:
Watch the videos for Math Class 2!

1). Calculate the semi-annual periodic rate of interest that is equivalent to 16% per
annum, compounded semi-annually.

1). 1%
2). 0.975879418%
3). 12%
4). 8%

2). A real estate developer has borrowed $60,000 by way of an interest accruing
loan written at J12=18%. How much will he owe at the end of 8 months?

1). 74,400.00 N J =
2). 67,589.55
3). 68,279.60 IYR Pmt =
4). 70,800.00
PV

PMT

FV

#PYR

3). How much should an investor be willing to pay for a property that he expects
to sell for $55,000 in three years if he desires a yield of J2=10% ?

1). 40,795.68 N J =
2). 41,041.85
3). 41,322.31 IYR Pmt =
4). 47,511.07
PV

PMT

FV

#PYR

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 MATH 1
4). An inexperienced borrower has agreed to an interest accruing loan
at a rate of 0.0675% per day, compounded daily. He borrowed $ 1,000.00
for one year. What will he owe at the end of that year?

N J =
1).
2).
IYR Pmt =
3).
4).
PV

PMT

FV

#PYR

5). Lisa has received an interest only loan in the amount of $850,000
which she will use to help build a new commercial property. The loan has
an interest rate of 5.5% per annum, compounded quarterly and requires
interest only payments to be made quarterly. If the loan is for 2 years, how
much are the interest loan payments that Lisa makes every quarter?

1). 11,687.51
2).$768,895.83
3).$46,7580.00
4).13,437.67

N J =

IYR Pmt =

PV

PMT

FV

#PYR

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 MATH 1
6). You have recently purchased a mortgage contract that will provide you
with quarterly payments of $1,700over 4 years. The outstanding balance of the
loan in the amount of $274,000 will be paid as a last payment. If you pay $250,000
for this mortgage contract, what is your yield expressed as a quarterly periodic
rate?

1) 1.4992863176%
N J =
2) 4.59971452703%
3) 4.90681622176% IYR Pmt =
4) 1.22670405544
PV

PMT

FV

#PYR

7). Assume that a bank agrees to give a loan at a interest rate of 12% per annum,
compounded semi-annually. Calculate the equivalent nominal rate per annum with
monthly compounding.

1). 12.36000% N J =
2). 11.71055%
3). 11.82521% IYR Pmt =
4). 11.66685%
PV
# NOM
PMT # PYR
# EFF
FV # PYR
# NOM
#PYR

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 MATH 1

8). A borrower wishes to make payments of no more than $500 per month for 360
months. If interest rates are currently 10 ½ % per annum compounded semi-
annually, what is the maximum amount should be lent?

1). 55,500.00
N J =
2). 54,660.38
3). 55,670.60
IYR Pmt =
4). 56,675.77
PV # NOM
# PYR
PMT # EFF
# PYR
FV # NOM


#PYR

9). Ally has received an interest only loan for $75,000 to operate a food cart in
downtown Vancouver. The loan has an interest rate of 6% per annum, compounded
monthly, and requires interest only payments every month. How much are the
monthly interest only payments that Ally must make if the duration of the loan is two
years?

1). 750 N J =
2). 500
IYR Pmt =
3). 375
4). 1,000 PV

PMT

FV

#PYR

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 MATH 1

NPEPN PRACTICE:

1). 2) 3).
J2 = 5 J52 = 4 J12 = 5
Pmt = Pmt = Pmt =
(monthly pmt) (daily pmt) (annual pmt)

____#NOM ____#NOM ____#NOM

____#PYR ____#PYR ____#PYR

____#EFF ____#EFF ____#EFF

____#PYR ____#PYR ____#PYR

____#NOM ____#NOM ____#NOM

= 4.9486…. = 3.9986…. = 5.1161….

4). 5). 6)
J365= 10 J4 = 18 J2 = 8
Pmt = Pmt = Pmt =
(quarterly pmt) (bi-weekly pmt) (weekly pmt)

____#NOM ____#NOM ____#NOM

____#PYR ____#PYR ____#PYR

____#EFF ____#EFF ____#EFF

____#PYR ____#PYR ____#PYR

____#NOM ____#NOM ____#NOM

= 10.1246…. = 17.6665…. = 7.8500….

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