# A new university is building a \$30,000,000 office and classroom bui...

## Question

A new university is building a \$30,000,000 office and classroom building in St. Louis in Missouri, and is planning to finance the construction at an 80% loan-to-value ratio, where the loan is in the amount of \$24,000,000. This loan has a ten-year maturity, calls for monthly payments, and is contracted at an interest rate of 7%.

Using the above information, answer the following questions.

1. What is the monthly payment?
2. Using Excel, construct the amortization table.
3. How much of the first payment is interest?
4. How much of the first payment is principal?
5. How much will the new university owe on this loan after making monthly payments for three years (the amount owed immediately after the thirty-sixth payment)?
6. Should this loan be refinanced after three years with a new seven-year 6% loan, if the cost to refinance is \$210,000 (this cost must be added to the outstanding debt in year three)? To make this decision, compare the new payments with the old payments.
7. Returning to the original ten-year 7% loan, how much is the loan payment if these payments are scheduled for quarterly rather than monthly payments?
8. For this loan with quarterly payments, how much will Saint Louis University owe on this loan after making quarterly payments for three years (the amount owed immediately after the twelfth payment)? (Hint: you can use an Excel spread sheet)
9. What is the effective annual rate (EAR) on the original ten-year 7% loan?
10. For the original ten-year 7% loan, how much is paid in interest over the entire life of the loan?
11. For the ten-year 7% loan, what is the total construction cost including financial cost?

## Solution Preview

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1. What is the monthly payment? = \$278,660.35
2. Using Excel, construct the amortization table. (Excel spreadsheet attached)...

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