CFA Level I · CFA Level I Exam · Fixed-Income Securitization
A borrower takes a 200,000 fixed-rate, level-payment, fully amortizing mortgage at a 6% annual rate with monthly payments. The monthly payment is 1,199.10. The scheduled principal repayment in the first month is closest to:
The first-month interest is 200,000 times 0.5%, or 1,000. Subtracting this from the 1,199.10 payment leaves about 199 of scheduled principal repayment. The 1,000 figure is the interest component, and 1,199 is the full payment.
- A199Correct
- B1,000
- C1,199
Explanation
Monthly rate = 6%/12 = 0.5%. First-month interest = 200,000 × 0.005 = 1,000. Principal = 1,199.10 − 1,000 = 199.10, about 199. The 1,000 option is the interest portion, and 1,199 is the whole payment.
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