1.Nancy buys a house in 2000. He obtains a fixed 10% mortgage interest rate, and makes payments of...

Question

1.Nancy buys a house in 2000. He obtains a fixed 10% mortgage interest rate, and makes payments of $1,000 per month. The 2000 CPI is 90, the 2001 CPI is 90, the 2002 CPI is 100, the 2003 CPI is 110, and the 2004 CPI is 120. (20 marks)
1.What is the real mortgage interest rate in 2001, 2002, 2003 and 2004? 
2.What are the values in 2000 dollars of Nancy's monthly mortgage payments in 2001, 2002, 2003, and 2004?

Robert · Accepted Answer

Nancy buys a house in 2000. He obtains a fixed 10% mortgage interest rate, and makes payments of $1,000 per month. The 2000 CPI is 90, the 2001 CPI is 90, the 2002 CPI is 100, the 2003 CPI is 110, and the 2004 CPI is 120. What is the real mortgage interest rate for 2001 2002 2003 2004? What are the values in 2000 dollars of Nancy's monthly mortgage payments in 2001, 2002, 2003, and 2004?
Answer:
Assuming it to be 30-year fixed mortgage
Since the payment is $1,000 per month, the principal amount would be 
PV = Payment (PVIFA @ I/12,

1.Nancy buys a house in 2000. He obtains a fixed 10% mortgage interest rate, and makes payments of $1,000 per month. The 2000 CPI is 90, the 2001 CPI is 90, the 2002 CPI is 100, the 2003 CPI is 110,...

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