A bank makes a 30 year Fully Amortizing FRM for $1,000,000 at an annual interest rate...

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A bank makes a 30 year Fully Amortizing FRM for $1,000,000 at an annual interest rate...

A bank makes a 30 year Fully Amortizing FRM for $1,000,000 at an annual interest rate of 4.13% compounded monthly, with monthly payments. Suppose inflation is 2% per year, compounded monthly. What is the real value of the 20th payment?"

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Answer 1

Answer #1

Monthly payment=Loan*(rate/12)/(1-1/(1+rate/12)^(12*loan term))=1000000*(4.13%/12)/(1-1/(1+4.13%/12)^(12*30))=4849.402724

Nominal 20th payment=4849.402724

Real 20th payment=4849.402724/(1+2%/12)^20=4690.550539

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Answer 2

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