TVM example using a home mortgage for calculations
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How is a home mortgage an example of TVM? How can you show that more interest is paid at the beginning of a loan period than at the end? What would you expect the impact of varying terms (years needed to pay off the loan) and rates to be using TVM rules?
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Solution Summary
Using a hypothetical home mortgage for an example, the solution works through various scenarios with differences in rates, terms and payment amounts to demonstrate the time value of money. The calculations are simple math which clearly show the effects of various options.
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Assuming TVM is the time value of money, a home mortgage is a great example. Home mortgages calculate interest at a pre-determined rate on the remaining principal balance. Because the principal balance is decreasing each month, the amount of the interest is decreasing each month.
To give you an example, let's say the mortgage is $100,000, the ...
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