HP 40gs User Manual page 152

hp40g+.book Page 6 Friday, December 9, 2005 1:03 AM
Example 2 - Mortgage with balloon payment
12-6
Suppose you have taken out a 30-year, $150,000 house
mortgage at 6.5% annual interest. You expect to sell the
house in 10 years, repaying the loan in a balloon
payment. Find the size of the balloon payment, the value
of the mortgage after 10 years of payment.
Solution. The following cash flow diagram illustrates the
case of the mortgage with balloon payment:
l%YR = 6.5
PV = $150,000
N = 30 x 12 = 360 (for PMT)
N = 10 x 12 = 120 (for balloon payment)
P/YR = 12; End mode
1
2
PMT = ?
•
Start the Finance Solver, selecting P/YR = 12 and
End payment option.
•
Enter the known TVM variables as shown in the
diagram above. Your input form, for calculating
monthly payments for the 30-yr mortgage, should
look as follows:
•
Highlighting the PMT field, press the
menu key to obtain a payment of -948.10 (i.e., PMT
= -$948.10)
•
To determine the balloon payment or future value (FV)
for the mortgage after 10 years, use N = 120,
highlight the FV field, and press the
key. The resulting value is FV = -$127,164.19. The
negative value indicates a payment from the
homeowner. Check that the required balloon
payments at the end of 20 years (N=240) and 25
years (N = 300) are -$83,497.92 and
-$48,456.24, respectively.
59
60
Balloon payment,
FV = ?
soft
soft menu
Using the Finance Solver