I have been trying hard to figure how do we get the P&I amount given in the solutions using a calculater. I have a BA II plus. I tried entering the values given but I am missing someting. I’d appreciate if someone could help me figure it out.

This does not get you P&I, it only gets you P. However, the “I” is irrelevant in this question so this method would suffice for the first period. It needs to be done again for the second period by reducing “N” by 1. These two amounts (in addition to the prepayments) are the amounts by which you reduce the principal.

I’m pretty sure that calculation DOES get you the P&I. To get the P, we can multiply (WAC/12) by the Carrying Amount. Then, to get the prepayments for the period, we use this formula: SMM = (Prepayments)/(Carrying Amount - Scheduled Principle Prepayments). In this case, the “Prepayments” is the unkown, so we solve for that. Finally, we add the P amount with the Prepayments and subtract this Total from the current Carrying Value, which get us the next period’s carrying amount.

This does give you P&I. The PMT solved for gives the amortization payment asssuming no prepayments. You subtract the interest off the P&I PMT calculated to get the scheduled principal payment. The only reason it needs to be done again in the second period is because there was a prepayment which will change the annuity payment.

I did enter the values as they were given to solve for PMT but I am getting a different answer. I had changed my calculator battery the night before so might just have messed up with the settings.

Thanks for the help guys and all the best for your preperations.

I keep getting the wrong number in the calculator as well. Something like $480,000 for monthly PMT for . This is something that would normally in my wheel house and find frustrating? I know I must be misisng something simple here…

You may be doing the same thing I was at first. I was entering my interest rate as .004 (percentage) rather than .4 (decimal - what the calculator uses. Took me an hour to realize my mistake

That is strange, as your inputs should yield the correct answer with the fixed interest rate. I might suggest just resetting your calculator if you have the option? Also, sometimes it just helps to clear the tvm settings a couple times for good measure. Don’t know why but sometimes ill get a strange answer before I have cleared the tvm for a new problem. Sorry I couldn’t be more help, I was sure it was the interest rate that was throwing you off

I’m stuck on this problem and it’s driving me insane… for some reason, I keep getting an answer close to their “A” choice when “B” is the correct answer… I’ll walk through my calculations:

Time 0:

PV = 117.54

N = 243

I = 4.8/12 = 0.4

FV = 0

Compute PMT … it gets -0.75717

Interest = 117.54*0.004 = 0.47016

Prepayment due to SMM = 0.007*117.54 = 0.82278 (they got 0.820771 in the answer key, don’t know why)