128 Section 12: Real Estate and LendingYield of a Mortgage Traded at a Discount or Premium

The annual yield of a mortgage bought at a discount or premium can be calculated given the original mortgage amount, interest rate, and periodic payment, as well as the number of payment periods per year, the price paid for the mortgage, and the balloon payment amount (if it exists).

Information is entered as follows:

1.Press gÂand fCLEARG.

2.Key in the total number of periods until the balloon payment occurs and press n. (If there is no balloon payment, key in the total number of periods and press n.)

3.Key in the periodic payment amount then press P.*

4.Key in the purchase price of the mortgage then press $.*

5.Key in the balloon payment amount then press M.* (If there is no balloon payment, go to step 6.)

6.Press ¼to obtain the yield per period.

7.Key in the number of periods per year and press § to obtain the nominal annual yield.

Example 1: An investor wishes to purchase a $100,000 mortgage taken out at 9% for 21 years. Since the mortgage was issued, 42 monthly payments have been made. What would be the annual yield if the purchase price of the mortgage is $79,000? (Since PMT was not given, it must be calculated).

Keystrokes

Display

gÂ

 

fCLEARG

252.00

21gA

9gC

0.75

100000Þ$

–100,000.00

P

884.58

:n

252.00

42-n

210.00

Enter the number of periods (into n).

Monthly interest rate (into i).

Mortgage amount (into PV; negative to indicate money paid out).

Payment received (calculated). Recall number of periods.

Number of periods left after mortgage is bought (into n).

*Positive for cash received; negative for cash paid out.

File name: hp 12c_user's guide_English_HDPMBF12E44

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Printered Date: 2005/7/29

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